DEF 14A 1 d656843ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨

   Preliminary Proxy Statement    ¨    CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))

x

   Definitive Proxy Statement      

¨

   Definitive Additional Materials      

¨

   Soliciting Material Pursuant to §240.14a-12      

Humana Inc.

 

 

(Name of Registrant as Specified In Its Charter)

 

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

 

  (2) Aggregate number of securities to which transaction applies:

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4) Proposed maximum aggregate value of transaction:

 

 

  (5) Total fee paid:

 

 

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

  (3) Filing Party:

 

 

  (4) Date Filed:

 

 


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LOGO

500 West Main Street

Louisville, Kentucky 40202

March 10, 2014

Dear Fellow Stockholders:

We would like to invite you to attend the Annual Meeting of Stockholders of Humana Inc., to be held on Tuesday, April 29, 2014, at 9:30 a.m., Eastern Time, at the Grand Hyatt Tampa Bay, located at 2900 Bayport Drive, Tampa, Florida 33607. The meeting will also be webcast via the Internet at the Investor Relations section of the Company’s website, www.humana.com. This proxy statement contains information about our Company and the four proposals to be voted upon by stockholders at the meeting. Please give this information your careful attention.

This year, we will once again be taking advantage of Securities and Exchange Commission rules that allow us to furnish proxy materials to our stockholders on the Internet. These materials will be available on the Internet on or about March 10, 2014. We continue to believe that Internet delivery of our proxy materials allows us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.

We hope you can attend the meeting. However, even if you are unable to join us, we urge you to still exercise your right as a stockholder and vote by telephone, mail or using the Internet. The vote of every stockholder is important.

This proxy statement is being mailed or transmitted on or about March 10, 2014 to our stockholders of record as of February 28, 2014.

 

   Sincerely,
   LOGO
  

Kurt J. Hilzinger

Chairman of the Board and Stockholder

   LOGO
  

Bruce D. Broussard

Director, President and Chief Executive Officer

and Stockholder


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LOGO

Notice of 2014 Annual Meeting of Stockholders

 

 

Time and Date:

   9:30 a.m., Eastern Time, on Tuesday, April 29, 2014

Location:

  

Grand Hyatt Tampa Bay

2900 Bayport Drive

Tampa, Florida 33607

Agenda:

  

1.        Elect the ten (10) director nominees named in the proxy statement.

 

2.        Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014.

 

3.        Non-binding advisory vote to approve the compensation of the Company’s Named Executive Officers.

 

4.        Consider and vote upon the stockholder proposal set forth in this proxy statement, if presented.

 

5.        Consider any other business properly brought before the meeting.

Record Date:

   February 28, 2014. Humana stockholders of record at the close of business on that date will be entitled to vote.

Proxy Voting:

  

Your vote is important so that as many Shares as possible will be represented. Please vote by one of the following methods:

•    BY INTERNET

•    BY TELEPHONE

•    BY RETURNING YOUR PROXY CARD (if you elected to receive printed materials)

See instructions on your proxy card or at the voting site (www.ProxyVote.com).

By Order of the Board of Directors,

 

LOGO

Joan O. Lenahan

Vice President and Corporate Secretary

March 10, 2014


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Frequently Asked Questions

     1       

Corporate Governance

     8       

Proposal One: Election of Directors

     20       

Director Compensation

     25       

Stock Ownership Information

     28       

Compensation Discussion and Analysis

     31       

Organization & Compensation Committee Report

     50       

Executive Compensation

     51       

Certain Transactions with Management and Others

     68       

Audit Committee Report

     69       

Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm

     71       

Proposal Three: Non-binding Advisory Vote With Respect to the Compensation of the Company’s Named Executive Officers

     72       

Proposal Four: Disclosure of Political Contributions and Expenditures

     73       

Incorporation by Reference

     75       

Additional Information

     75       


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FREQUENTLY ASKED QUESTIONS

Why am I receiving this Proxy Statement?

 

 

You are receiving a proxy statement because you owned shares of Humana common stock as of Friday, February 28, 2014, the Record Date, and that entitles you to vote at the Annual Meeting. Our Board of Directors has made these materials available to you on the Internet or, upon your request, has delivered printed versions of these materials to you by mail, in connection with the Board’s solicitation of proxies on behalf of the Company for use at our 2014 Annual Meeting of Stockholders. Your proxy will authorize specified people (proxies) to vote on your behalf at the Annual Meeting. By use of a proxy, you can vote, whether or not you attend the meeting.

This proxy statement describes the matters on which the Company would like you to vote, provides information on those matters, and provides information about the Company that we must disclose when we solicit your proxy.

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

 

 

Pursuant to rules adopted by the U.S. Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials over the Internet. We believe that Internet delivery of our proxy materials allows us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials, which we refer to as the Notice, to our stockholders and beneficial owners as of the Record Date. All stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found on the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by calling Broadridge Financial Solutions, Inc., or Broadridge, at 1-800-579-1639.

How can I get electronic access to the proxy materials?

 

 

The Notice provides you with instructions regarding how to:

 

   

View our proxy materials for the Annual Meeting on the Internet; and

 

   

Instruct us to send our future proxy materials to you electronically by e-mail.

Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our Annual Meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.

When and where is the Annual Meeting?

 

 

The Annual Meeting will be held on Tuesday, April 29, 2014 at 9:30 a.m., Eastern Time, at the Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, Florida 33607.

 

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Who is entitled to vote?

 

 

Anyone who owns Humana Inc. common stock, which we refer to as Shares, as of the close of business on February 28, 2014, which we refer to as the Record Date, is entitled to vote at the Annual Meeting or at any later meeting should the scheduled Annual Meeting be adjourned or postponed for any reason.

How many Shares are eligible to vote?

 

 

As of the Record Date, February 28, 2014, 154,722,888 Shares were outstanding and entitled to vote. Each Share is entitled to one vote on each of the matters to be considered at the Annual Meeting.

What will I be voting on?

 

 

 

   

Election of the ten (10) director nominees named in this proxy statement to serve on the Board of Directors of the Company;

 

   

Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014;

 

   

A non-binding, advisory vote to approve the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

A stockholder proposal as set forth in this proxy statement, if presented.

The Board of Directors is not aware of any other matters to be presented for action at the Annual Meeting. However, if other matters are properly presented for a vote, the proxies will be voted for these matters in accordance with the judgment of the persons acting under the proxies.

How does the Board recommend I vote on each proposal?

 

 

The Board recommends that you vote your Shares as follows:

 

   

FOR the election of each of the ten (10) director nominees named in this proxy statement;

 

   

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014;

 

   

FOR the approval of the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

AGAINST the stockholder proposal as set forth in this proxy statement, if presented.

All Shares that are represented at the Annual Meeting by properly executed proxies received before or at the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the instructions indicated in the proxies.

 

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How will my Shares be voted if I do not specify how they should be voted?

 

 

If you sign and return your proxy card without indicating how you want your Shares to be voted, our representatives will vote your Shares as follows:

 

   

FOR the election of each of the ten (10) director nominees named in this proxy statement;

 

   

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014;

 

   

FOR the approval of the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

AGAINST the stockholder proposal as set forth in this proxy statement, if presented.

What if my Shares are not registered in my name?

 

 

If you own your Shares in “street name,” meaning that your bank, broker or other nominee is actually the record owner, you should receive the Notice from your bank, broker or other nominee. In addition, stockholders may request, by calling Broadridge at 1-800-579-1639, to receive proxy materials in printed form, by mail or electronically by e-mail on an ongoing basis. When you own your Shares in street name, you are deemed a beneficial owner or holder for voting purposes.

If you hold Shares through an account with a bank, broker or other nominee and you do not provide voting instructions on your instructions form, your Shares may not be voted by the nominee with respect to certain proposals, including:

 

   

the election of directors;

 

   

the approval of the compensation of the Company’s Named Executive Officers; or

 

   

the stockholder proposal as set forth in this proxy statement, if presented.

Banks, brokers and other nominees have the authority under the regulations of the New York Stock Exchange, or the NYSE, to vote shares for which their customers do not provide voting instructions only on certain “routine” matters, including the ratification of the appointment of the Company’s independent registered public accounting firm. However, the proposals listed above are not considered “routine” matters, and therefore your Shares will not be voted with respect to such proposals if you do not provide voting instructions on your instruction form.

What is a “broker non-vote”?

 

 

A broker “non-vote” occurs when a nominee holding Shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner, but does have discretionary voting power over other items and submits votes for those matters. As discussed above, if you hold Shares through a bank, broker or other nominee and do not provide voting instructions to your bank, broker or other nominee, your Shares may not be voted with respect to certain proposals, such as the proposals listed above.

 

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How many votes are required to approve each proposal and what are the effects of abstentions, broker non-votes and unmarked proxy cards?

 

 

 

Proposal   

Vote Required for

Approval

  

Effect of

Abstentions

  

Uninstructed

Shares/Broker

Non-Votes

  

Unmarked/Signed

Proxy Cards

Election of directors

   The number of votes cast for a nominee exceeds the number
of votes cast against
that nominee.
 (1)
   No effect    Not voted (2)    Voted “For”

Ratification of the appointment of the independent auditor

   Majority of shares
present and entitled
to vote
   Counted as “Against”    Discretionary vote/Not Voted    Voted “For”

Approval of executive compensation

  

Majority of shares present

and entitled to vote

   Counted as “Against”    Not voted (2)    Voted “For”

Stockholder proposal as set forth in this proxy statement, if presented

  

Majority of shares present

and entitled to vote

   Counted as “Against”    Not voted (2)    Voted “Against”

 

(1) Under the Company’s Majority Vote Policy adopted in January 2007, following election to our Board of Directors, a director is required to submit his or her irrevocable resignation to our Board of Directors conditioned upon (1) the director not achieving the requisite stockholder vote at any future meeting at which he or she faces re-election, and (2) acceptance of the resignation by the Board of Directors following that election. The Board of Directors has 90 days after a director fails to achieve the requisite stockholder votes to determine whether or not to accept the director’s resignation and to report this information to our stockholders.
(2) Pursuant to current NYSE regulations, brokers do not have discretionary voting power.

What is a “quorum”?

 

 

A “quorum” is a majority of the outstanding Shares. Shares may be voted at the Annual Meeting by a signed proxy card, by telephone instruction, or electronically on the Internet. There must be a quorum for the Annual Meeting to be held. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining whether a quorum exists.

How do I vote?

 

 

There are four ways that you can vote your Shares. Voting by any of these methods will supersede any prior vote you made regardless of how that vote was made. PLEASE CHOOSE ONLY ONE OF THE FOLLOWING:

 

  1) By Internet.    The website for voting is http: //www.ProxyVote.com. In order to vote on the Internet, you need the control number on your proxy card. Each stockholder has a unique control number so we can ensure all voting instructions are genuine and prevent duplicate voting. The Internet voting system is available 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on Monday, April 28, 2014. Once you are logged on the Internet voting system, you can record and confirm (or change) your voting instructions. If you use the Internet voting system, you do not need to return your proxy card.

 

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  2) By telephone.    If you are a registered holder in the United States or Canada, you should call 1-800-690-6903. The telephone voting system is available 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on Monday, April 28, 2014. In order to vote by telephone, you need the control number on your proxy card. Each stockholder has a unique control number so we can ensure all voting instructions are genuine and prevent duplicate voting. Once you are logged on the telephone voting system, a series of prompts will tell you how to record and confirm (or change) your voting instructions. If you use the telephone voting system, you do not need to return your proxy card.

 

  3) By mail.    Mark your voting instructions, sign and date the proxy card and then return it in the postage-paid envelope provided. If you mail your proxy card, we must receive it before 12:00 p.m. Eastern Time on Friday, April 25, 2014. If you are returning your proxy card to Broadridge, they must receive it before 10:00 a.m. Eastern Time on Monday, April 28, 2014, the day before the Annual Meeting.

 

  4) In person.    Attend the Annual Meeting. Mark your voting instructions and deliver to the Inspectors of Election. However, you can vote by methods 1, 2 or 3 above prior to the meeting and still attend the Annual Meeting. In all cases, a vote at the Annual Meeting will revoke any prior votes. Please note that if your Shares are held through a bank, broker or other nominee, you will need to bring proof of ownership to the Annual Meeting in order to vote.

How do I vote the share equivalent units held in the Humana Common Stock Fund of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan?

 

 

If you have an interest in the Humana Common Stock Fund of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan on the Record Date, you may vote. Under the Humana Retirement Savings Plan and the Humana Puerto Rico Retirement Savings Plan, your voting rights are based on your interest, or the amount of money you and the Company have invested in your Humana Common Stock Fund.

You may exercise these voting rights in almost the same way that stockholders may vote their Shares, but you have an earlier deadline, and you should provide your voting instructions to Broadridge. Broadridge will aggregate the votes of all participants and provide voting information to the Trustee for the applicable plan. If your voting instructions are received by 11:59 p.m. Eastern Time on Tuesday, April 22, 2014, the Trustee will submit a proxy that reflects your instructions. If you do not give voting instructions (or give them late), the Trustee will vote your interest in the Humana Common Stock Fund in the same proportion as the Shares attributed to the Humana Retirement Savings Plan, or the Humana Puerto Rico Retirement Savings Plan, as applicable, are actually voted by the other participants in the applicable plan.

You must provide your instructions to Broadridge by using the Internet, registered holder telephone number (1-800-690-6903) or mail methods described above. Please note that you cannot vote in person at the Annual Meeting. Your voting instructions will be kept confidential under the terms of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan, as applicable.

Who will count the votes?

 

 

Broadridge will tabulate the votes cast by proxy, whether by proxy card, Internet or telephone. Additionally, the Company’s Inspectors of Election will tabulate the votes cast at the Annual Meeting together with the votes cast by proxy.

 

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How do I revoke my proxy?

 

 

You have the right to revoke your proxy at any time before the meeting.

Your method of doing so will depend upon how you originally voted (a later vote will supersede any prior vote you made regardless of how that vote was made):

 

  1) By Internet — simply log in and resubmit your vote — Broadridge will only count the last instructions;

 

  2) By Telephone — simply sign in and resubmit your vote — Broadridge will only count the last instructions;

 

  3) By Mail — you must give written notice of revocation to Broadridge, 51 Mercedes Way, Edgewood, NY 11717 or by fax at 1-515-254-7733, submit another properly signed proxy with a more recent date, or vote in person at the Annual Meeting. For written and fax notices, you must include the control number that is printed on the upper portion of the proxy card.

What is the due date for stockholder proposals, including stockholder nominees for director, for inclusion in the Company’s proxy materials for the 2015 Annual Meeting?

 

 

Stockholder proposals, including stockholder nominees for director, as permitted by SEC regulations for inclusion in our proxy materials relating to the 2015 Annual Meeting of Stockholders must be submitted to the Corporate Secretary in writing no later than November 10, 2014. Proposals should be submitted to Joan O. Lenahan, Vice President and Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202.

May a stockholder present a proposal not included in our Proxy Statement at the April 29, 2014 Annual Meeting?

 

 

A stockholder can present a proposal at the Annual Meeting (a so-called “floor resolution”) only if certain notice requirements are met. The SEC does not directly regulate meeting conduct. State law imposes only limited requirements, so meetings are governed by procedures set forth in our Bylaws. Humana’s Bylaws require that a stockholder provide written notice of intent to bring a proposal no less than 60 days or more than 90 days prior to the scheduled date of the Annual Meeting of stockholders. If less than 70 days’ notice of the Annual Meeting is given, written notice by a stockholder would be deemed timely if made no later than the 10th day following such notice of the Annual Meeting. A proposal must also meet other requirements as to form and content set forth in our Bylaws. Stockholder proposals should be sent to Joan O. Lenahan, Vice President and Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202. A copy of our Bylaws is available on our website. From the www.humana.com website, click on “Investor Relations,” and then click on “Corporate Governance,” and then click on the link entitled, “Bylaws.”

How will Humana solicit votes and who pays for the solicitation?

 

 

We have engaged D. F. King & Co., Inc. to assist in the distribution of proxy materials and solicitation of votes for approximately $12,000 plus expenses. We have also engaged Broadridge to assist in the distribution of proxy

 

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materials and the accumulation of votes through the Internet, telephone and coordination of mail votes for approximately $175,000 plus expenses. We will reimburse banks, brokers and other nominees for their reasonable out-of-pocket expenses for forwarding proxy and solicitation material to our stockholders.

How can I obtain additional information about the Company?

 

 

Included with this proxy statement (either in printed form or on the Internet) is a copy of our Annual Report on Form 10-K for the year ended December 31, 2013, which also contains the information required in our Annual Report to Stockholders. Our Annual Report on Form 10-K and all our other filings with the SEC also may be accessed via the Investor Relations section on our website at www.humana.com. We encourage you to visit our website. From the www.humana.com website, click on “Investor Relations,” and then click on the report you wish to review under the “SEC Filings & Financial Reports” subcategory.

Where can I find voting results for this Annual Meeting?

 

 

The voting results will be published in a current report on Form 8-K which will be filed with the SEC no later than four business days after the Annual Meeting. The Form 8-K will also be available on our website at www.humana.com.

What is “householding”?

 

 

“Householding” occurs when a single copy of our Annual Report, proxy statement or Notice is sent to any household at which two or more stockholders reside if they appear to be members of the same family. Although we do not “household” for registered stockholders, a number of brokerage firms have instituted householding for Shares held in street name. This procedure reduces our printing and mailing costs and fees. Stockholders who participate in householding will continue to receive separate proxy cards, and householding will not affect the mailing of account statements or special notices in any way. If you wish to receive separate copies of our Annual Report, proxy statement or Notice in the future, please contact the bank, broker or other nominee through which you hold your Shares.

 

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CORPORATE GOVERNANCE

Humana is committed to having sound corporate governance principles and operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct, and assuring compliance with such responsibilities and standards. Sound corporate governance is essential to running our business effectively and to maintaining our reputation of integrity in the marketplace. At the heart of these efforts lie our company values, the guiding forces behind all our actions — Inspire Health, Cultivate Uniqueness, Rethink Routine, Pioneer Simplicity, and Thrive Together. Our Board of Directors has adopted Corporate Governance Guidelines, which we refer to as the Guidelines, intended to comply with the requirements of Section 303A.09 of the NYSE Listed Company Manual. The Guidelines may be viewed on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” then click on “Corporate Governance,” and then click on the link entitled “Corporate Governance Guidelines.”

Role of the Board and Board Leadership

Role of the Board

 

 

The business of the Company is managed under the direction of the Board, which is elected annually by the Company’s stockholders. The basic responsibility of the Board is to lead the Company by exercising its business judgment to act in what each director reasonably believes to be the best interests of Humana and its stockholders, engaging in active and independent oversight of the management of the Company’s business affairs and assets. In order to fulfill its responsibilities to the Company’s stockholders, the Board, both directly and through its committees, regularly engages with management, ensures management accountability and reviews the most critical issues that face the Company, such as approval of the Company’s strategy and mission, execution of the Company’s financial and strategic goals, oversight of risk management, succession planning, and determination of executive compensation.

Board Oversight of Risk

 

 

While management is responsible for designing and implementing the Company’s risk management process, controls and oversight, the Board, both as a whole and through its committees, has overall responsibility for oversight of the Company’s risk management. The Board implements this risk oversight function both as a whole and through various committees. The full Board regularly reviews risks that may be material to the Company, including those detailed in the Audit Committee’s reports and as disclosed in the Company’s quarterly and annual reports filed with the SEC.

Audit Committee.    Pursuant to its charter, and in compliance with applicable NYSE listed company rules, the Audit Committee is responsible for discussing the Company’s policies with respect to overall risk assessment and risk management, with primary responsibility for monitoring risks with respect to the Company’s accounting and financial reporting principles and policies and internal audit controls and procedures. To accomplish this, the Audit Committee regularly reviews with both internal Company personnel and independent auditors the risks that may be material to the Company, as well as major legislative and regulatory developments which could materially impact the Company’s risks. The Audit Committee meets separately with representatives of our independent audit firm and members of management in charge of internal controls and procedures with respect to financial reporting. The Company has also instituted a management Enterprise Risk Management Committee to assess the risks of the Company and coordinate with and report to the Audit Committee.

 

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Organization & Compensation Committee.    The Board of Directors has delegated to the Organization & Compensation Committee the responsibility of assessing the risks associated with the Company’s compensation practices and policies for employees, including consideration of the counterbalance of risk-taking incentives and risk-mitigating factors in Company practices and policies.

The goal of these processes is to achieve serious and thoughtful board-level attention to the Company’s risk management process and system, the nature of the material risks faced by the Company, and the adequacy of the Company’s risk management process and system designed to respond to and mitigate these risks.

Board Leadership

 

 

Leadership of the Board is essential to facilitate the Board acting effectively as a working group to the benefit of the Company and its performance. As Chairman of the Board, Mr. Hilzinger serves as Chair of regular sessions of the Board, runs the Board process and ensures effectiveness in all aspects of the Board’s role, and leads the Board in anticipating and responding to crises.

The Board believes that the advisability of having a separate or combined chairman and chief executive officer positions is dependent upon the strengths of the individual or individuals that hold these positions and the most effective means of leveraging these strengths, in light of the challenges and circumstances facing the Company, which may change over time. At this time, given the composition of the Company’s Board, the effective interaction between Mr. Hilzinger, as Chairman, and Mr. Broussard, as Chief Executive Officer, Mr. Hilzinger’s status as an independent director and previous service as our Lead Director, and the current challenges faced by the Company, the Board believes that separating the chief executive officer and Board chairman positions provides the Company with the right foundation to pursue the Company’s strategic and operational objectives, while maintaining effective oversight and objective evaluation of the performance of the Company.

Qualifications and Process for Nominating Directors

Director Qualifications

 

 

The Guidelines contain Board membership criteria that apply to nominees recommended by the Nominating & Corporate Governance Committee for a position on the Board. The Board has determined that each member of the Board (except Mr. Broussard, as a current employee of the Company) is independent according to criteria established in the Guidelines by the Board, and in accordance with independence requirements of the NYSE and the SEC. The members of the Organization & Compensation Committee must also meet the independence criteria of the Internal Revenue Code. The Nominating & Corporate Governance Committee reviews with the Board the requisite skills and characteristics for Board members. This assessment includes the desired experience, mix of skills and other qualities to assure appropriate Board composition, taking into account other Board members and the specific needs of the Company and the Board. Although the Board and the Nominating & Corporate Governance Committee do not have a policy with regard to the consideration of diversity in identifying director nominees, the director nomination process is designed to ensure that the Board includes members with diverse backgrounds, including race, ethnicity, gender, skills and experience, such as appropriate financial and other expertise relevant to the Company’s business. The goal of this process is to assemble a group of board members with deep, varied experience, sound judgment, and commitment to the Company’s success. For a discussion of the individual experience and qualifications of our board members, please refer to the section entitled, “Proposal One: Election of Directors” in this proxy statement.

 

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Identifying Nominees for Directors

 

 

The Board is responsible for selecting its own members and delegates the screening process for new directors to the Nominating & Corporate Governance Committee, with counsel from the Chairman, our Chief Executive Officer, and outside consultants as appropriate. The Committee utilizes a number of methods for identifying and evaluating nominees for Board membership. The Committee regularly assesses the appropriate size of the Board, the areas of expertise required to effectively contribute to the Board process, and whether any vacancies are anticipated. The Committee considers potential candidates for director, which may come to the attention of the Committee through current Board members, professional search firms, stockholders, or other persons. The Nominating & Corporate Governance Committee selects candidates who possess a reputation and hold positions or affiliations befitting a director of a large publicly-held company, and are actively engaged in their occupations or professions or are otherwise regularly involved in the business, professional or academic community. In addition, from time to time, we engage a third-party search firm to assist the Board of Directors and the Nominating & Corporate Governance Committee in identifying and recruiting candidates for Board membership.

Stockholder Nominees

 

 

The policy of the Nominating & Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board as described above under “Identifying Nominees for Directors.” In the course of evaluating nominations for Board membership, the Nominating & Corporate Governance Committee will look for individuals who have displayed high ethical standards, integrity, and sound business judgment, taking into account the current make-up of the Board and the specific needs of the Company and the Board. Stockholder nominations for election to the Board of Directors are governed by specific provisions in our Bylaws, a copy of which is available on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” and then click on “Corporate Governance,” and then click on the link entitled, “By-Laws.” The Bylaws require that a stockholder provide written notice of intent to nominate a candidate for director no less than 60 days or more than 90 days prior to the scheduled date of the Annual Meeting of stockholders. If less than 70 days’ notice of the Annual Meeting is given, written notice by a stockholder would be deemed timely if made no later than the 10th day following such notice of the Annual Meeting. Any stockholder nominations proposed for consideration by the Nominating & Corporate Governance Committee should include, among other information required by the Bylaws, the nominee’s name, qualifications for Board membership and compliance with our Director Resignation Policy discussed in this proxy statement and should be sent to: Joan O. Lenahan, Vice President and Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202.

Director Independence

The Guidelines contain independence standards to assist the Board in its determination of director independence. In addition, to qualify as independent under the Guidelines, the Board of Directors must affirmatively determine that a director has no material relationship with the Company, other than as a director.

Pursuant to the Guidelines, the Board undertakes an annual review of director independence. During this review, the Board considers transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates, including transactions or relationships which could have been reported under “Certain Transactions with Management and Others” in this proxy statement. As provided in the Guidelines, the purpose of this review is to determine whether any such relationships or transactions are inconsistent with a determination that a director is independent.

 

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In the course of this review for the current year, the Board specifically analyzed and discussed several matters:

 

  (1) a relationship between the Company and Pfizer Inc., or Pfizer, for which Frank A. D’Amelio, one of our current directors, serves as an executive officer;

 

  (2) a relationship between the Company and the Thomas Jefferson University, by which Dr. David B. Nash, one of our current directors, is employed as Founding Dean of the Jefferson School of Population Health;

 

  (3) a relationship between the Company and Ashland Inc., or Ashland, for which James J. O’Brien, one of our current directors, serves as Chairman of the Board and Chief Executive Officer;

 

  (4) a relationship between the Company and JAPC, Inc., or JAPC, which is owned by the father of David A. Jones, Jr., one of our current directors;

 

  (5) a relationship between the Company and Chrysalis Ventures, LLC, or Chrysalis, for which David A. Jones, Jr., one of our current directors, serves as Chairman and in which Mr. Jones has a financial interest;

 

  (6) a relationship between the Company and Main Street Realty, Inc., or Main Street Realty, which is owned by the father of David A. Jones, Jr., one of our current directors; and

 

  (7) business relationships between our subsidiary, Concentra Inc. (or its affiliates) and various companies for which our current directors serve as directors or executive officers.

Pfizer.    The relationship between the Company and Pfizer consists of a negotiated rebate based on the volume of prescriptions of Pfizer drugs obtained by Humana members, an amount that includes Humana claims paid and the co-payments paid by our members for Pfizer drugs. These rebate amounts are significant. However, these payments to Humana from Pfizer result from activity with many intermediaries over whom Humana exercises no control (i.e., the providers who prescribe these medications, the distributors who sell to the retailers, and the retailers from which our members get prescriptions). In 2013, the rebate amounted to approximately $55.6 million. We have also agreed to complete various research studies for Pfizer, for which we were paid an immaterial amount of fees by Pfizer in 2013. We also received voluntary critical illness plan premiums from Pfizer in the aggregate amount of approximately $200,000. The premiums charged and benefits provided under this arrangement are comparable to those extended to our other non-affiliated customers.

Thomas Jefferson University.    The relationship between the Company and Thomas Jefferson University consists of a data sharing arrangement whereby our subsidiary, Comprehensive Health Insights, Inc., provides data to Thomas Jefferson University at current commercial rates following our standard protocols for use in teaching and obtaining grants and pharmaceutical-related projects.

Ashland.    In 2013, we received health care premium payments from Ashland in the aggregate amount of approximately $1.4 million. The premiums charged and benefits provided under these arrangements are comparable to those extended to our other non-affiliated customers.

JAPC.    In 2013, we provided hangar space, pilot services and maintenance for an airplane owned by JAPC, for which we were fully reimbursed by JAPC at a rate at least as favorable to the Company as market rates, which amounts were not material.

Chrysalis.    In 2013, we received health care premium payments from Chrysalis in the aggregate amount of approximately $72,000. The premiums charged and benefits provided under these arrangements are comparable to those extended to our other non-affiliated customers. In addition, in 2013, we contracted for services to be provided by certain companies in Chrysalis’ investment portfolio. In each case, the amounts paid under these arrangements were comparable to those for other non-affiliated vendors, were not material to the Company, and did not represent a direct or indirect material interest for Mr. Jones, Jr.

 

 

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Main Street Realty.    In 2013, we received health care premium payments from Main Street Realty in the aggregate amount of approximately $226,000. The premiums charged and benefits provided under the arrangement are comparable to those extended to our other non-affiliated customers.

Concentra Relationships.    In 2013, our subsidiary, Concentra Inc., and certain of its affiliates received payments from various companies for which our current directors serve as directors or executive officers. In each case, the amounts charged and the occupational medicine, urgent care, physical therapy, and health and wellness services provided under the arrangements are comparable to those extended to other non-affiliated customers.

At the conclusion of its review for the current year, the Board affirmatively determined that in each case the relationship between the Company or its affiliate and each director-related entity was not material, was below the thresholds for independence prescribed by the NYSE, and did not impact the independence of any of our directors. Each director recused themselves from the independence assessment relative to himself or herself.

Consistent with these considerations, and based on its review of director independence in light of the standards contained in the Guidelines, the Board determined that each member of the Board of Directors (except Mr. Broussard, as a current employee of the Company) is independent.

 

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Committee Membership and Attendance

The Board of Directors has the following committees: Audit; Organization & Compensation; Nominating & Corporate Governance; Executive; and Investment. Only directors meeting SEC and NYSE director independence standards may serve on the Audit Committee, the Organization & Compensation Committee, and the Nominating & Corporate Governance Committee. Each Board committee operates pursuant to a charter, which may be viewed on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” then click on “Corporate Governance,” and then you will see a link to the Committee Charters.

The number of Board committee meetings held in 2013 and membership as of March 1, 2014, were as follows:

 

     Audit  

Organization
&

Compensation

  Nominating  &
Corporate
Governance
  Executive   Investment

Number of Meetings in 2013

  8   11   3   0   4

NAME

                   

Bruce D. Broussard

              C    

Frank A. D’Amelio

  C               M

W. Roy Dunbar

      M           C

Kurt J. Hilzinger

              M    

David A. Jones, Jr.

      M   C   M    

William J. McDonald

      C           M

William E. Mitchell

  M       M        

David B. Nash, M.D.

  M                

James J. O’Brien

  M               M

Marissa T. Peterson

      M   M        

 

C = Chair
M = Member

Audit Committee

Committee Responsibilities

 

 

Pursuant to its charter, the Audit Committee:

 

   

assists the Board of Directors with the oversight of the integrity of our financial statements and disclosures and internal controls, our compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence and the performance of our internal audit function and the independent registered public accounting firm;

 

   

bears responsibility for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged to prepare the audit report or perform other audit, review or attest services;

 

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reviews with the independent registered public accounting firm, our internal audit department, and our financial and accounting personnel, the effectiveness of our accounting and financial controls and, where appropriate, makes recommendations for the improvement of these internal control procedures;

 

   

reviews the scope, funding and results of our internal audit function including the independence and authority of our reporting obligations, the proposed audit plans for the year, and the coordination of these plans with the independent registered public accounting firm;

 

   

reviews the scope, funding and results of our compliance program, including receiving, at least quarterly, an update from our internal compliance department regarding any significant matters regarding our compliance with regulatory requirements and contracts with government entities;

 

   

reviews the financial statements and other information contained in our Annual Report and other reports to stockholders with management and the independent registered public accounting firm to determine that the independent registered public accounting firm is satisfied with the disclosure and content of the financial statements to be presented to the stockholders and reviews any changes in accounting principles;

 

   

confers independently with our internal auditors, internal compliance department, key members of management, and our independent registered public accounting firm;

 

   

determines and approves the appropriateness of the fees for audit and permissible non-audit services performed by the independent registered public accounting firm;

 

   

discusses with management our compliance with applicable legal requirements and with our internal policies regarding related party transactions and conflicts of interest;

 

   

discusses our policies with respect to risk assessment and risk management;

 

   

maintains free and open means of communication between the members of our Board of Directors, our independent registered public accounting firm, our internal audit department, our internal compliance department, and our financial management; and

 

   

annually evaluates its performance.

Corporate Governance Determinations

 

 

The Board of Directors has determined that each of the members of the Audit Committee at February 19, 2014 is independent according to SEC and NYSE requirements, and each is financially literate, as defined in the NYSE listing standards. The Board of Directors has determined further that Messrs. D’Amelio, O’Brien and Mitchell each meet the definition of “audit committee financial expert.” PricewaterhouseCoopers LLP, our independent registered public accounting firm, reports directly to the Audit Committee. No member of the Board’s Audit Committee serves on the audit committees of more than three publicly traded companies. The Report of the Audit Committee for the year ended December 31, 2013 is set forth in this proxy statement under the caption “Audit Committee Report.”

 

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Organization & Compensation Committee

Committee Responsibilities

 

 

Pursuant to its charter, the Organization & Compensation Committee:

 

   

reviews and approves our goals and objectives relevant to the compensation of our Chief Executive Officer, or CEO, evaluates the CEO’s performance in light of those goals and objectives, and, either as a Committee or together with the other independent directors, determines and approves the CEO’s compensation level based on this evaluation;

 

   

makes recommendations to the Board with respect to the CEO’s and other executive officers’ base compensation, incentive-compensation plans and equity-based plans and approves programs for our executive officers;

 

   

approves equity-based grants to executive officers and other associates;

 

   

approves material elements of all employment, severance and Change in Control agreements for the executive officers;

 

   

reviews and discusses with management the Company’s compensation plans and policies for all employees (including the Named Executive Officers) with respect to risk management and risk-inducing incentives;

 

   

ensures preparation of the Compensation Discussion and Analysis and the Compensation Committee Report as required by SEC regulations; and

 

   

annually evaluates its performance.

Scope of Authority, Processes and Procedures

 

 

The Organization & Compensation Committee acts on behalf of the Board of Directors to establish the compensation of our executive officers and provides oversight of our compensation philosophy, as described in this proxy statement under the caption “Compensation Discussion and Analysis.” The role of the executive officers and the outside compensation consultant in establishing executive compensation is discussed in this proxy statement under the caption “Compensation Discussion and Analysis.” Other than routine administrative matters, no executive compensation decisions are delegated to management.

Compensation Committee Interlocks and Insider Participation

 

 

No member of the Organization & Compensation Committee:

 

   

is or has ever been an officer or employee of the Company; or

 

   

is or was, during the last fiscal year, a participant in a “related person” transaction requiring disclosure under Item 404 of the SEC’s regulations (see discussion in this proxy statement under the caption “Certain Transactions with Management and Others”); or

 

   

is an executive officer of another entity, at which one of our executive officers serves either as a director or on its compensation committee.

 

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Corporate Governance Determinations

 

 

Considering (i) the source of each director’s compensation, including any consulting, advisory or other compensatory fees paid by the Company; and (ii) whether each director has an affiliate relationship with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company, the Board has determined that each member of the Organization & Compensation Committee at February 19, 2014 is independent, as defined by the SEC and the NYSE, and is considered to be an “outside director” under Section 162(m) of the Internal Revenue Code.

Compensation Risk Determination

 

 

In 2013, the Organization & Compensation Committee assessed the risks associated with the Company’s compensation practices and policies for employees, including a consideration of the counterbalance of risk-taking incentives and risk-mitigating factors in Company practices and policies. Following this assessment, the Organization & Compensation Committee determined that the risks arising from the Company’s compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

Nominating & Corporate Governance Committee

Pursuant to its charter, the Nominating & Corporate Governance Committee:

 

   

recommends to the full Board criteria for the selection and qualification of the members of the Board;

 

   

evaluates and recommends for nomination by the Board candidates to be proposed for election by the stockholders at each annual meeting;

 

   

seeks out and assists in the recruitment of highly qualified candidates to serve on the Board;

 

   

recommends for Board approval candidates to fill vacancies on the Board which occur between annual meetings;

 

   

develops, periodically reviews and recommends to the Board revisions to the Guidelines;

 

   

studies and reviews with management the overall effectiveness of the organization of the Board and the conduct of its business, and makes appropriate recommendations to the Board;

 

   

reviews the overall relationship of the Board and management;

 

   

reviews issues and developments pertaining to corporate governance; and

 

   

annually evaluates its performance.

Executive Committee

Pursuant to its charter, the Executive Committee possesses the authority to exercise all the powers of the Board of Directors except as otherwise provided by Delaware law and our Bylaws during intervals between meetings of the Board. The Executive Committee does not have the power, to, among other things, declare a dividend, issue stock, adopt a certificate of merger or sell substantially all of the Company’s business.

 

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Investment Committee

Pursuant to its charter, the Investment Committee establishes investment objectives and policies for our various investment portfolios and investment options available under various employee benefit plans, reviews investment results, and annually evaluates its performance.

Corporate Governance Policies

Majority Vote Policy

 

 

Under our Bylaws, a director nominee will be elected if the number of votes cast for the nominee exceeds the number of votes cast against the nominee. In contested elections, those in which a stockholder has nominated a person for election to the Board, the voting standard is a plurality of votes cast. The Board has also adopted a policy to require the Board to nominate for election only nominees who agree that, if they are elected to the Board, they will tender an irrevocable resignation conditioned on, first, the failure to achieve the required vote for re-election at any future meeting at which they face re-election, and second, the Board’s acceptance of their resignation following that election. In addition, the Board may fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by other directors, as described above. The Nominating & Corporate Governance Committee will submit a recommendation for prompt consideration by the Board whether to accept the resignation. Any director whose resignation is under consideration will abstain from participating in any decision regarding that resignation. The Bylaws also require stockholder nominees for director election to notify the Company whether or not such nominees intend to tender the same type of resignation required of the Board’s director nominees.

Change in Director’s Primary Position

 

 

The Board has adopted a policy requiring that a director whose primary position or affiliation changes must promptly notify the Board and the Nominating & Corporate Governance Committee of the change so that a determination may be made as to the value of his or her continued service on the Board.

Director Stock Ownership Policy

 

 

Our Board believes that directors should be stockholders and have a significant personal financial stake in the company. Consequently, the Board has adopted the following revised stock ownership guidelines:

 

   

Each non-employee director must maintain a minimum equity ownership level of five times the annual cash retainer.

 

   

Shares deferred at the election of the director are considered owned for purposes of the calculation of the ownership requirement.

 

   

Any shares owned by a non-employee director (or shares received upon the exercise of options or vesting of restricted stock or restricted stock units, less an amount to cover the exercise price and/or current tax liabilities) must be held by the director until the minimum equity ownership level is reached and thereafter maintained.

 

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Once the minimum equity ownership level has been achieved, any shares received upon the vesting of restricted stock or restricted stock units, less an amount to cover current tax liabilities, must be held by the director until one year following the vesting date.

Compliance with these guidelines is monitored by the Organization & Compensation Committee of the Board.

Director Attendance

 

 

The Board has developed a number of specific expectations of directors to define their responsibilities and to promote the efficient conduct of the Board’s business. With respect to the level of commitment expected of directors and related attendance protocols, as part of the Guidelines, the Board formally adopted a policy that all directors should make every effort to attend all meetings of the Board and the Committees of which they are members, and the Company’s Annual Meeting of Stockholders. Attendance by telephone or video conference may be used to facilitate a Director’s attendance.

During 2013, the Board of Directors met eight times. All directors attended at least 75% of the scheduled Board of Directors’ meetings and meetings held by Committees of which they were members. All director nominees who were directors in April 2013 attended the Annual Meeting of Stockholders held April 25, 2013, except Messrs. Dunbar and D’Amelio, each of whom had conflicts with previously scheduled engagements.

Executive Sessions of Non-Management Directors

 

 

In 2013, our non-management directors held regularly scheduled, formal executive meetings, separate from management. Additional executive sessions of the Board are held as necessary or appropriate or upon the request of the Chairman, the Nominating & Corporate Governance Committee or any two other non-management directors. In addition, our non-management directors who qualify as independent within the meaning of our director independence guidelines meet in executive session at least once annually, and, in fact, met in 2013 in connection with each regularly scheduled Board of Directors meeting.

In 2013, executive sessions of our non-management directors were led by our Chairman, while executive sessions of our independent directors were led by Mr. Hilzinger, who was our Lead Director during 2013. Our Corporate Governance Guidelines required the Lead Director to be an independent director. Effective January 1, 2014, these meetings are led by Mr. Hilzinger, our Chairman, who is an independent, non-management director.

Code of Ethics and Code of Business Conduct

 

 

The Company has adopted the “Code of Ethics for the Chief Executive Officer and Senior Financial Officers,” which we refer to as the Executive Code of Ethics, violations of which are reported to the Audit Committee. In addition, we operate under the omnibus Humana Inc. Principles of Business Ethics, which we refer to as the Principles of Business Ethics, which applies to all associates (including executive officers) and directors. The Humana Ethics Office is responsible for the design and enforcement of our ethics policies. The Humana Ethics Office has created an Ethics Plan, the goal of which is to create a workplace climate in which ethics is so integral to day-to-day operations that ethical behavior is self-enforcing. All employees are required annually to review and affirm in writing their acceptance of the Principles of Business Ethics. The Principles of Business Ethics and the Executive Code of Ethics may be viewed on our website at www.humana.com. Any waiver for directors or executive officers from the provisions of the Principles of Business Ethics or the

 

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Executive Code of Ethics must be made by the Board of Directors, and will be disclosed within four days of the waiver on our website at www.humana.com. To see either the Principles of Business Ethics or the Executive Code of Ethics or any waivers to either policy, go to www.humana.com, then click on “Investor Relations,” then click on “Corporate Governance,” and then click on the relevant link.

Policy Regarding Transactions in Company Securities

 

 

The Company has a policy prohibiting all associates (including executive officers) from hedging transactions using Company stock, including: (1) engaging in short sales of Company securities; or (2) engaging in transactions in puts, calls or other derivative securities designed to hedge or offset any decrease in the market value of the Company’s equity securities, on an exchange or in any other organized market. This policy also applies to all directors.

Communication with Directors

 

 

Stockholders and other interested parties may communicate directly with our Chairman, non-management directors as a group, or any other individual director by writing to the special e-mail address published on our website at www.humana.com. Specifically, interested parties may visit our website at http://apps.humana.com/bod/contact.asp, where instructions for contacting these persons are available. All directors have access to this e-mail address. We use the staff of our Corporate Secretary to review correspondence received in this manner, and to filter advertisements, solicitations, spam, and other such items. Concerns related to accounting, internal controls or auditing matters are required to be brought immediately to the attention of our General Counsel and the Board and handled in accordance with procedures established by the Audit Committee with respect to such matters.

 

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PROPOSAL ONE: ELECTION OF DIRECTORS

The Board of Directors of the Company, in accordance with the provisions of the Company’s Articles of Incorporation and Bylaws, has determined that the number of directors to be elected at the Annual Meeting of the Company shall be ten. The directors are elected to hold office until the Annual Meeting of Stockholders in 2015 and until a successor is elected and qualified.

Each of the nominees has consented to be named as a nominee and agreed to serve if elected. If any nominee becomes unable to serve for any reason (which is not anticipated), the Shares represented by the proxy granted to Messrs. Hilzinger and Broussard may be voted for the substituted nominee as may be designated by the Board of Directors.

The following table shows certain information concerning the nominees at March 1, 2014.

 

Name

       Age          Position    First Elected
Director
 

Kurt J. Hilzinger

     53       Chairman of the Board      07/03   

Bruce D. Broussard

     51       Director, President and Chief Executive Officer      01/13   

Frank A. D’Amelio

     56       Director      09/03   

W. Roy Dunbar

     52       Director      04/05   

David A. Jones, Jr.

     56       Director      05/93   

William J. McDonald

     57       Director      10/07   

William E. Mitchell

     69       Director      04/09   

David B. Nash, M.D.

     58       Director      01/10   

James J. O’Brien

     59       Director      04/06   

Marissa T. Peterson

     52       Director      08/08   

Director Skills & Qualifications

 

 

In evaluating a director candidate, the Committee considers factors that are in the best interests of the Company and its stockholders, including the knowledge, experience, integrity and judgment of each candidate, the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board desires to have represented, each candidate’s ability to devote sufficient time and effort to his or her duties as a director, independence and willingness to consider all strategic proposals, and any core competencies or technical expertise necessary to staff Board committees. In addition, the Committee assesses whether a candidate possesses the integrity, business judgment, knowledge, experience, skills and expertise that are likely to enhance the Board’s ability to manage and direct the affairs and business of the Company. We believe that the current Board members not only have and demonstrate these attributes, but also have a deep commitment to the Company’s success, as evidenced by the key qualifications, skills and experiences of each director described below.

The information given in this proxy statement concerning the nominees is based upon statements made or confirmed to the Company by or on behalf of the nominees.

 

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Director Nominees’ Biographies

 

 

 

LOGO

  

Kurt J. Hilzinger was initially elected to the Board in July 2003, and was elected Chairman of the Board effective January 1, 2014. Mr. Hilzinger served as Lead Director from August 2010 until his appointment as Chairman. Mr. Hilzinger is a Partner at Court Square Capital Partners, LP, having held this position since November 2007. Prior to that, he was a Director of AmerisourceBergen Corporation from March 2004 to November 2007; and was also President and Chief Operating Officer of AmerisourceBergen Corporation from October 2002 to November 2007, having previously served as Executive Vice President and Chief Operating Officer of AmerisourceBergen Corporation from August 2001 to October 2002.

 

The Board believes that Mr. Hilzinger is a strong operating executive with a finance and strategic background, whose operational experience and financial expertise in the health care sector contributes valuable insight to the Board.

LOGO

  

Bruce D. Broussard was appointed President and Chief Executive Officer of the Company, and elected to our Board of Directors, in each case effective January 1, 2013, completing a year-long transition plan to the Chief Executive Officer role. Mr. Broussard joined Humana as President in December 2011. Prior to joining Humana, Mr. Broussard was Chief Executive Officer of McKesson Specialty/US Oncology, Inc. (US Oncology was purchased by McKesson in December 2010). At US Oncology, he served in a number of senior executive roles, including Chief Financial Officer, President, Chief Executive Officer and Chairman of the Board. Mr. Broussard is also a member of the Business Roundtable and a member of the Board of Directors of America’s Health Insurance Plans (AHIP), also serving on AHIP’s Executive Committee.

 

The Board believes that Mr. Broussard’s wide range of executive leadership experience in publicly traded and private organizations within a variety of healthcare sectors, including oncology, pharmaceuticals, assisted living/senior housing, home care, physician practice management, surgical centers, and dental networks, as well as his in-depth knowledge of the Company’s operations, finances and strategy, brings valuable insight to the Board.

LOGO

  

Frank A. D’Amelio was initially elected to the Board in September 2003. He is Executive Vice President, Business Operations and Chief Financial Officer of Pfizer Inc, having held this position since December 2010, and having served as Chief Financial Officer since September 2007. Prior to that, Mr. D’Amelio was Senior Executive Vice President of Integration and Chief Administrative Officer at Alcatel-Lucent from December 2006 to August 2007, and Chief Operating Officer of Lucent Technologies Inc. from March 2006 to November 2006. From May 2001 until February 2006, he was Executive Vice President, Administration and Chief Financial Officer of Lucent. Mr. D’Amelio also serves on the Board of Directors of Zoetis, Inc. and on the boards of the Independent College Fund of New Jersey and the Gillen Brewer School.

 

The Board believes that Mr. D’Amelio’s skills, global experience and proven leadership in both financial and operational roles contribute greatly to the Board’s composition. As a senior executive at various global companies undergoing the kind of rapid and complex changes that the Company has undertaken in response to the rapidly changing markets and regulatory environment, Mr. D’Amelio has extensive knowledge of the capital markets as well as broad experience working with the investment community, regulatory bodies and rating agencies.

 

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LOGO

 

W. Roy Dunbar was initially elected to the Board in April 2005. Mr. Dunbar was the Chairman of the Board of NetworkSolutions, and was the Chief Executive Officer from January 2008 to November 2009. Mr. Dunbar also served as the President of Global Technology and Operations for MasterCard Incorporated from September 2004 until January 2008. Mr. Dunbar worked at Eli Lilly and Company for 14 years, latterly as President of Intercontinental Operations from 2003 until he joined MasterCard, and Chief Information Officer from 1999 to 2003. Mr. Dunbar also serves on the Board of Directors of iGate Corporation and Lexmark International.

 

The Board believes that Mr. Dunbar’s innovative, consumer-focused approach to information technology at a variety of global companies brings a valuable advantage to the Board. The Board benefits from Mr. Dunbar’s expertise in leading companies focused on the development of information systems that are easy for consumers to understand and use effectively, which is critical to the Company’s extension of its position as a leader in health care information technology. Mr. Dunbar’s extensive experience in health care over three decades further contributes to the strategic composition of the Board.

LOGO  

David A. Jones, Jr. was initially elected to the Board in May 1993 and served as Chairman of the Board of the Company from April 2005 through August 2010, and Vice Chairman of the Board from September 1996 through April 2005. He is Chairman of Chrysalis Ventures, LLC, headquartered in Louisville, Kentucky.

 

As a successful venture capitalist, the Board believes that Mr. Jones brings strategic insight and leadership and a wealth of experience in health care to the Board, both in the Company’s core businesses as well as in emerging technologies and business models.

LOGO

 

William J. McDonald was initially elected to the Board in October 2007. Mr. McDonald is the managing partner of Wild Irishman Advisory, LLC, a marketing consulting firm. Prior to that, he was Executive Vice President, Brand Management of Capital One Financial Corporation, having held that position from 1998 until his retirement in 2013.

 

The Board believes that Mr. McDonald’s service in various senior executive marketing positions contributes significant experience and expertise in brand development, marketing and related disciplines.

LOGO

 

William E. Mitchell was initially elected to the Board in April 2009. Mr. Mitchell is the managing partner of Sequel Capital Management, LLC. Prior to that, Mr. Mitchell served as the Chairman of the Board of Directors of Arrow Electronics, Inc. from May 2006 until December 31, 2009, and also served as President and Chief Executive Officer of Arrow Electronics, Inc. from February 2003 to May 1, 2009. Mr. Mitchell also serves on the Board of Directors of Rogers Corporation and Spansion, Inc., and previously served on the Board of Directors of Brown-Forman Corporation.

 

The Board believes that Mr. Mitchell’s insights and experience running a complex global public company, as well as his significant experience in the governance of large publicly-traded corporations, will be valuable in helping to guide the Company in the years ahead.

 

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LOGO

  

David B. Nash, M.D. was initially elected to the Board effective January 1, 2010. He is the founding dean of the Jefferson School of Population Health, located on the campus of Thomas Jefferson University in Philadelphia, Pennsylvania, having taken that position in 2008. Previously, Dr. Nash was the Chairman of the Department of Health Policy of the Jefferson Medical College from 2003 until 2008. Dr. Nash also serves on the board of directors of Vestagen Specialty Textiles, and the medical advisory board of Medivo Inc., and previously served on the boards of Itrax Corporation and InforMedix.

 

The Board believes that Dr. Nash brings a unique and compelling set of attributes that enhance the Company’s ability to help people achieve lifelong well-being. As a widely recognized innovator in an emerging medical discipline that unites population health, health policy, and individual health, Dr. Nash is internationally recognized for his work in outcomes management, medical staff development and quality-of-care improvement.

LOGO   

James J. O’Brien was initially elected to the Board in April 2006. Since 2002, Mr. O’Brien has been the Chairman of the Board and Chief Executive Officer of Ashland Inc. Prior to being named to this position, Mr. O’Brien was President and Chief Operating Officer of Ashland Inc., and before that, Senior Vice President and Group Operating Officer. He currently serves on the Board of Directors of Ashland Inc. and Albemarle Corporation.

 

As a highly respected leader in the global business community with an extraordinary track record of success, the Board believes that Mr. O’Brien’s breadth of management experience adds valuable expertise and insight to the Board.

LOGO   

Marissa T. Peterson was initially elected to the Board in August 2008. Ms. Peterson was formerly Executive Vice President, Worldwide Operations, Services & Customer Advocacy for Sun Microsystems Inc. in Santa Clara, California, until her retirement in 2005 after 17 years with the company. She currently runs an executive coaching practice focused on helping grow and develop leaders in the high-technology space. Ms. Peterson currently serves on the board of directors for Ansell Limited, Oclaro Inc. and Quantros, and previously served on the board of directors of SUPERVALU INC., and Lucile Packard Children’s Hospital at Stanford, and the board of trustees of Kettering University.

 

The Board believes that Ms. Peterson’s operating and consumer-focused leadership, and experience developing and managing programs designed to help companies reduce the time, cost and risk of transforming their businesses by leveraging technology to architect, implement and maintain customers’ network computing infrastructures, bring valuable insights to the Board. Her commitment to a “customer first” ethic at Sun Microsystems Inc. established an industry leadership position for high quality and cost-effective product execution to a global customer base, a commitment that aligns with the Company’s focus on consumerism.

 

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Vote Required and Recommendation of the Board of Directors

 

 

A director nominee will be elected if the number of votes cast for the nominee exceeds the number of votes cast against the nominee. Shares not present at the Annual Meeting and shares voting “abstain” or broker “non-votes” have no effect on the election of directors. Under the Company’s Majority Vote Policy, following election to our Board of Directors, a director is required to submit his or her irrevocable resignation to our Board of Directors, conditioned upon (i) the director not achieving the requisite stockholder vote at any future meeting at which they face re-election, and (ii) acceptance of the resignation by the Board of Directors following that election. The Board of Directors has 90 days to determine whether or not to accept the director’s resignation and to report this information to our stockholders.

FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ALL NOMINEES.

 

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DIRECTOR COMPENSATION

2013 Director Compensation Program

 

 

During 2013, our directors were compensated pursuant to the following schedule:

 

Annual Retainer (1)    $85,000

Non-Employee Chairman of the Board

Additional Annual Retainer

   $160,000

Lead Director

Additional Annual Retainer

   $25,000

Committee Chairman fee per year:

1. Audit Committee Chair

2. Organization & Compensation Committee Chair

3. All other Committee Chairs

  

$25,000

$18,000

$12,000

Executive Committee Member fee per year    $12,000

Common Stock per year

(1st Business Day of January) (1)(2)

  

$140,000 in common stock

(variable # of shares)

Charitable Contributions Annual Match    up to $25,000

Group Life and Accidental Death Insurance—

(except Chairman)

   $150,000 of coverage
Group Life and Accidental Death Insurance—Chairman    $400,000 of coverage
Business Travel Accident Insurance    $250,000 of coverage

Restricted Stock Units

Granted Initial Date of Election (3)

   Restricted Stock Unit  grant equal to the dollar value of the then current annual stock grant for directors

 

  (1) As an employee director elected to the Board, Mr. Broussard will not receive the annual retainer or annual stock grant for service as a director. For all other directors, effective January 1, 2013, the annual common stock retainer is paid in the form of restricted stock units and will be pro-rated for any service of less than the full year in respect of which the award is granted.

 

  (2) Effective July 1, 2012, pursuant to our revised Directors Stock Retention Policy, each non-employee director must maintain a minimum equity ownership level of five times the annual cash retainer. For additional information, please refer to “Corporate Governance — Corporate Governance Policies — Director Stock Ownership Guidelines” in this proxy statement.

 

  (3) This initial award of Restricted Stock Units is forfeited if the director serves less than one year on the Company’s Board of Directors.

 

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2013 Compensation of Our Directors

 

 

The following table shows the compensation earned by our non-employee directors in 2013 in connection with their service on our Board of Directors:

 

Name

(1)

(a)

 

Fees
Earned
or

Paid in

Cash

($)(2)

(b)

   

Stock

Awards

($)(2)(3)(4)
(c)

   

Option

Awards

($)(5)

(d)

   

Non-Equity

Incentive Plan

Compensation

($)(6)

(e)

   

Change in
Pension

Value and
Nonqualified
Deferred

Compensation

Earnings($)(7)

(f)

   

All Other

Compensation

($)(8)

(g)

   

Total

($)

(h)

 

Frank A. D’Amelio

    110,000        141,618        —         —         —         21,926        273,544   

W. Roy Dunbar

    97,000        141,618        —         —         —         7,060        245,678   

Kurt J. Hilzinger

    122,000        141,618        —         —         —         31,497        295,115   

David A. Jones, Jr.

    109,000        141,618        —         —         (31,567     34,587        253,638   

Michael B. McCallister

    272,000        141,618        —         —         —         35,429        449,047   

William J. McDonald

    103,000        141,618        —         —         —         30,447        275,065   

William E. Mitchell

    85,000        141,618        —         —         —         28,723        255,341   

David B. Nash, M.D.

    85,000        141,618        —         —         —         26,678        253,296   

James J. O’Brien

    85,000        141,618        —         —         —         27,018        253,636   

Marissa T. Peterson

    85,000        141,618        —         —         —         22,848        249,466   

 

  (1) During 2013, Mr. Broussard served as President and Chief Executive Officer of the Company, and therefore, as an employee director, did not earn compensation in connection with his service on our Board. Mr. Broussard’s compensation as our Chief Executive Officer is discussed under “Executive Compensation” in this proxy statement. In addition, effective December 31, 2013, Mr. McCallister retired as Chairman of our Board of Directors.

 

  (2) Under the Humana Inc. Deferred Compensation Plan for Non-Employee Directors, which we refer to as the Deferred Compensation Plan, non-employee directors may make an irrevocable election each year to defer compensation paid to them by the Company in the form of cash or stock for services rendered as Board members. For 2013, Messrs. D’Amelio, Dunbar, Mitchell and O’Brien and Dr. Nash each deferred their stock compensation. A director electing to defer cash can choose any of the investment options offered in the Deferred Compensation Plan using Charles Schwab’s Retirement Plan Services (other than the Humana Common Stock Fund) or can invest in stock units that have a value relative to that of our common stock. For 2013, Mr. Jones and Dr. Nash each elected to defer a portion or all of their cash compensation under the Schwab program.

 

  (3) On January 2, 2013, when the fair market value of our common stock was $69.10, each director in office at that time, other than Mr. Broussard, was granted a stock award of 2,026 shares, representing the annual grant of $140,000 in common stock. The amount shown in column (c) above is the grant-date fair market value times the number of shares awarded, plus any dividend equivalent rights accrued on such shares. Effective January 1, 2013, the annual grant is awarded in the form of restricted stock units that vest one year later, and is pro-rated for any service of less than the full year in respect of which the award is granted.

 

  (4) Through 2013, vested restricted stock units with a payout deferral made by the director accrue quarterly dividends equivalent rights that are reinvested into the director’s account as additional restricted stock units and will be included in the final restricted stock unit payment when the shares are issued in accordance with the director’s payout election. This column includes dividend equivalent units that have accrued through December 31, 2013.

 

  (5) Non-Employee Directors did not receive any stock options as part of the 2013 Directors Compensation Program.

 

  (6) Non-Employee Directors did not receive any non-equity incentive plan compensation as part of the 2013 Directors Compensation Program.

 

  (7) A director who is not an employee must retire at the annual meeting following his or her seventy-third birthday. Non-employee directors elected subsequent to 1997 do not receive any retirement benefits. As he was first elected to the board in 1993, David A. Jones, Jr. is the only director nominee that will have retirement benefits under this former retirement policy, including: (A) at the director’s election, either: (x) an annual retirement benefit for the life of the director in the amount of $38,000, the annual retainer fee in effect for 1997; or (y) in lieu thereof, an actuarially equivalent joint and survivor annuity payment; and (B) an annual matching charitable contribution benefit of $19,000 for the life of the director.

 

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  (8) We pay for or reimburse our directors’ travel, lodging and other reasonable out-of-pocket expenses in connection with attendance at board, committee and stockholder meetings. From time to time, we may transport one or more directors and their spouses to and from such meetings or other Company business on company aircraft. We also reimburse the director for other reasonable expenses related to board service, such as director education, which amounts are not included in the table above. In addition, we paid certain local occupational taxes and life and accidental death insurance premiums per outside director, in each case as disclosed below, and provided a matching charitable gift program. Directors may elect to participate in the medical and dental benefit programs offered to all our employees at a rate comparable to the rate paid by employees. In 2013, Messrs. Dunbar, McDonald and Mitchell, and Ms. Peterson, elected to participate. The “All Other Compensation” amount above includes the following amounts earned in connection with service on our Board of Directors:

 

Director

   Matching
Charitable Gift
   Occupational
Tax
   Life
Insurance
   Other    Total –
All Other
Compensation

Frank A. D’Amelio

   $            17,485    $        3,667    $        774    $          0    $        21,926

W. Roy Dunbar

   $              5,000    $        1,646    $        414    $          0    $          7,060

Kurt J. Hilzinger

   $            25,000    $        4,836    $        414    $   1,247    $        31,497

David A. Jones, Jr.

   $            25,000    $        8,489    $        774    $      324    $        34,587

Michael B. McCallister

   $            25,000    $        7,261    $     3,168    $          0    $        35,429

William J. McDonald

   $            25,000    $        4,673    $        774    $          0    $        30,447

William E. Mitchell

   $            25,000    $        1,437    $     2,286    $          0    $        28,723

David B. Nash, M.D.

   $            25,000    $             24    $        774    $      880    $        26,678

James J. O’Brien

   $            25,000    $        1,244    $        774    $          0    $        27,018

Marissa T. Peterson

   $            16,672    $        4,524    $        414    $    1,238    $        22,848

Outstanding Equity – Outside Director Nominees

 

 

None of our non-employee director nominees hold stock options. Our Director Compensation Program currently does not award stock options to non-employee directors and all stock options previously granted to our non-employee directors have been exercised. The following table sets forth the restricted stock units held (or deferred) by our non-employee director nominees as of the date indicated (see Footnote 2 to the table entitled “2013 Compensation of Our Directors” in this proxy statement):

 

     January  15,
2014
 

Frank A. D’Amelio

     20,657   

W. Roy Dunbar

     21,004   

Kurt J. Hilzinger

     16,116   

David A. Jones, Jr.

     5,117   

William J. McDonald

     28,217   

William E. Mitchell

     19,984   

David B. Nash, M.D.

     16,535   

James J. O’Brien

     25,702   

Marissa T. Peterson

     17,856   

 

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STOCK OWNERSHIP INFORMATION

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the SEC and the NYSE reports of ownership and reports of changes in ownership of our common stock and our other equity securities. These reports generally are due within two business days of the transaction. Executive officers, directors, and greater than ten percent stockholders are required to furnish us with copies of all the forms they file.

During the year ended December 31, 2013, based upon our knowledge of stock transfers, a review of copies of these reports and written representations by persons subject to Section 16(a) as furnished to us, except as stated below, all executive officers, directors, and greater than ten percent beneficial owners of our common stock complied with Section 16(a) filing requirements applicable to us. We have a program to oversee the compliance of our executive officers and directors in their reporting obligations.

Beginning in July 2011, on each of our quarterly dividend payment dates, Frank A. D’Amelio’s brokerage firm purchased additional Humana shares with the applicable cash dividend. These nominal purchases were inadvertently not reported to us by the brokerage firm in a timely fashion, and therefore were not reported on a Form 4 pursuant to the requirements of Section 16(a). Mr. D’Amelio had no opposite way transactions during this time. Promptly upon Mr. D’Amelio’s and our learning of these transactions, we reported them on a Form 4 on November 14, 2013.

Security Ownership of Certain Beneficial Owners of Company Common Stock

 

 

We know of no person or entity that may be deemed to own beneficially more than 5% of our outstanding common stock except for:

 

     Number of Shares      Percent of Class
Outstanding(1)
 

BlackRock, Inc.

40 East 52nd Street

New York, New York 10022

     12,472,725 shares         8.1%(2)   

JP Morgan Chase & Co.

270 Park Avenue

New York, New York 10017

     9,069,632 shares         5.9%(3)   

Capital Research Global Investors

333 South Hope Street

Los Angeles, California 90071

     9,540,959 shares         6.2%(4)   

Capital World Investors

333 South Hope Street

Los Angeles, California 90071

     11,638,780 shares         7.6%(5)   

 

  (1) The percentage of ownership is based on 154,030,409 shares of our common stock outstanding as of December 31, 2013.

 

  (2) Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2013, BlackRock, Inc. reports that through various subsidiaries, it has sole power to vote 11,025,004 shares and has dispositive power over 12,472,725 shares.

 

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  (3) Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2013, JP Morgan Chase & Co. reports that through various subsidiaries, it has sole power to vote 8,339,527 shares, shared power to vote 43,686 shares, sole dispositive power over 9,000,983 shares, and shared dispositive power over 68,649 shares.

 

  (4) Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2013, Capital Research Global Investors reports that as a result of Capital Research and Management Company acting as investor adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940, Capital Research Global Investors it is deemed to be the beneficial owner of 9.540,959 shares over which it has sole voting power and sole dispositive power.

 

  (5) Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2013, Capital World Investors reports that as a result of Capital Research and Management Company acting as investor adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940, Capital World Investors is deemed to be the beneficial owner of 9.540,959 shares over which it has sole voting power and sole dispositive power.

Security Ownership of Directors and Executive Officers

 

 

The following table shows stock ownership as of January 15, 2014 by (i) each of our directors, (ii) Bruce D. Broussard, our President and Chief Executive Officer, (iii) James H. Bloem, our Chief Financial Officer during 2013 (who retired from this position effective December 31, 2013), (iv) each of our three other highest compensated executive officers serving at December 31, 2013, (we collectively refer to these officers in this proxy statement as our Named Executive Officers), and (v) by all our directors and executive officers as a group.

 

     Company Common
Stock Beneficially
Owned as of
January 15, 2014
(1)(2)
     Percent
of
Class as of
January 31, 2014
(3)
 

Frank A. D’Amelio

     20,634      

W. Roy Dunbar

     9,687      

Kurt J. Hilzinger

     19,448      

David A. Jones, Jr.

     145,365      

William J. McDonald

     2,276      

William E. Mitchell

     100      

David B. Nash, M.D.

     112      

James J. O’Brien

     1,000      

Marissa T. Peterson

     2,026      

Bruce D. Broussard

     168,944      

James H. Bloem

     68,088      

James E. Murray

     186,767      

Timothy S. Huval

     4,680      

Jody L. Bilney

     0      

All directors and executive officers as a group (23 in number, including those named above)

     929,911         0.6

 

  (1) Beneficial ownership of Shares, for purposes of this proxy statement, includes Shares as to which a person has or shares voting and/or investment power. Therefore, any restricted stock for which a person has voting power and all share equivalents in the Humana Retirement Savings Plan are included. These footnotes describe whenever an individual shares voting and/or investment power over the Shares beneficially owned by them.

 

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The number of Shares listed:

 

  (a) Includes certain Share equivalents held for the benefit of the individuals in the Humana Retirement Savings Plan as of December 31, 2013, over which the employee participant has voting power and investment power. As of December 31, 2013, our Named Executive Officers held 661 such Share equivalents in the Humana Retirement Savings Plan, while all of our executive officers as a group (14 in number) held 18,830 such Share equivalents.

 

  (b) Includes unvested restricted stock unit awards which are scheduled to vest within 60 days after January 15, 2014, as follows:

 

Bruce D. Broussard

     0   

James H. Bloem

     5,149   

James E. Murray

     8,867   

Timothy S. Huval

     0   

Jody L. Bilney

     0   

All executive officers as a group (numbering 14, including those named herein)

     51,774   

 

  (c) Includes Shares which may be acquired by these individuals through the exercise of options, which are exercisable currently or within 60 days after January 15, 2014 under the 2003 Stock Incentive Plan or the 2011 Stock Incentive Plan. As of January 15, 2014, none of our non-employee directors held exercisable options, and exercisable options held by our executive officers were as follows:

 

Bruce D. Broussard

     124,868   

James H. Bloem

     32,613   

James E. Murray

     52,501   

Timothy S. Huval

     4,680   

Jody L. Bilney

     0   

All executive officers as a group (numbering 14, including those named herein)

     287,714   

 

  (d) Does not include stock awards to certain of our director nominees that have been deferred pursuant to our Deferred Compensation Plan for Non-Employee Directors. These deferred stock awards include the initial award of 7,500 restricted stock units to each of Messrs. McDonald, Mitchell and O’Brien, Dr. Nash and Ms. Peterson when first elected a director, which by its terms must be held until the recipient is no longer serving on our Board of Directors. As of January 15, 2014, the Shares deferred were as follows (includes accrued dividend equivalent units on deferred shares and deferred cash that was invested in the Humana Common Stock Fund):

 

Frank A. D’Amelio

     20,657   

W. Roy Dunbar

     21,004   

Kurt J. Hilzinger

     16,116   

David A. Jones, Jr.

     5,117   

William J. McDonald

     28,217   

William E. Mitchell

     19,984   

David B. Nash, M.D.

     16,535   

James J. O’Brien

     25,702   

Marissa T. Peterson

     17,856   

 

  (e) Does not include the January 2, 2014 annual stock retainer of 1,358 restricted stock units granted to each of our director nominees (other than Mr. Broussard) pursuant to our director compensation program, which restricted stock units will vest at the end 2014.

 

  (2) As of March 1, 2014, no shares of stock are pledged by any of our executive officers or directors.

 

  (3) Unless indicated, less than 1% of the class.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis presents in detail our compensation policies and practices, describing each element of compensation and the decision-making process that supports it. It addresses how we compensate our Named Executive Officers, and how we uphold our compensation philosophy through a governance system that includes internal oversight as well as expert independent outside review. We believe that our compensation policies and practices achieve our compensation goals, and that the total mix of compensation provided to our Named Executive Officers is consistent with a philosophy of motivating and rewarding for actual achievements.

Executive Summary

Humana’s Compensation Philosophy

 

 

The compensation program for our Named Executive Officers supports our philosophy that compensation should be market-based, competency-paced and contribution-driven. Our compensation programs are designed to challenge participants as well as reward them for superior performance for our Company and our stockholders. In furtherance of this philosophy, we believe that our compensation program must:

 

   

Be competitive to attract, motivate and retain highly qualified executives;

 

   

Provide appropriate rewards for outstanding financial and individual performance in support of our business strategy; and

 

   

Align executives’ interests with those of our stockholders by including a significant portion of executive pay that is “at risk” in the form of both annual incentive awards that are paid, if at all, based on Company performance, and, in the case of longer term incentive awards, tied closely to increases in the Company’s stock price or strategic metrics.

Humana’s 2013 Performance

 

 

Humana, one of the country’s leading health care companies, offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being. By leveraging the strengths of our core businesses, we believe we can better explore opportunities for existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions of people across the nation with whom we have relationships.

Our 2013 earnings per share of $7.73, including a $0.99 per share of benefits expense for our closed block long-term care insurance policies reserve strengthening, compared with $7.47 per share in 2012, reflect improved operating results for most of our major business lines compared to the previous year and the continued implementation of our strategy to enhance our integrated care delivery model. The integrated care delivery model is our approach to physician-directed primary care for our members, that aims to provide quality care that is consistent, integrated, cost-effective and member-focused. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless health care experience. Our goal is to improve the community’s health by making it easy for individuals to achieve their best health.

 

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In 2013, our operational discipline led to significant Medicare membership growth (one of the two components of our new performance-based equity awards), further progress on our 15 percent solution (our commitment to provide Medicare medical benefits for at least 15 percent less than it costs the federal government for comparable benefits in traditional Medicare, with the same or better quality), continued focus on prudent administrative spending, and a Company-wide focus on return on invested capital (the second component of our new performance-based equity awards).

Humana’s Compensation Program: Strong Corporate Governance

 

 

Highlighted below are some of the key elements of our compensation program that the Board’s Organization & Compensation Committee, which we refer to as the Committee, believes evidence strong corporate governance and prudent compensation decisions:

 

   

Pay for Performance. The key elements of direct executive compensation — salary, cash incentives, and equity awards — are designed to put a substantial portion of executive pay at risk to motivate and challenge our executives to achieve positive returns for our stockholders. In 2013, 85% of the direct compensation of our Named Executive Officers was at risk, in the form of annual incentive and long-term incentive compensation. Our earnings per share increased from $7.47 in 2012 to $7.73 for the fiscal year ending December 31, 2013, including $0.99 per share of benefits expense for our closed block long-term care insurance policies reserve strengthening. In February 2013, the Company granted performance-based equity awards to our Named Executive Officers, with performance criteria for these awards based upon three-year cumulative goals for (a) strategic membership growth and (b) return on invested capital less weighted average cost of capital, further linking executive compensation to the Company’s performance.

 

   

Internal and External Benchmarking. We benchmark our executive compensation both against other publicly traded companies that are comparable to us and within our company to ensure relativity of competitive pay between all executive officers.

 

   

Recoupment. Our “clawback” provision allows us to recoup cash-based incentives earned by an executive officer in the event of a material restatement of the Company’s financials as a result of misconduct or fraud on the part of that executive officer.

 

   

Committee Independence. All members of the Committee are independent according to SEC and NYSE independence standards. Our independent compensation consultant, Towers Watson, is retained directly by and reports to the Committee.

 

   

Stock Ownership Guidelines. Our stock ownership guidelines for executive officers links a significant amount of each executive’s current and potential future net worth to the Company’s success, as reflected in the stock price, to give the executive a stake similar to that of our stockholders. According to the guidelines, any shares owned by an executive officer (or shares received upon the exercise of options or vesting of restricted stock or restricted stock units, less an amount to cover current tax liabilities) must be held by the executive officer until the relevant ownership level is reached and thereafter maintained.

 

   

Hedging. The Company prohibits all associates, including executive officers, from: (1) engaging in short sales of Company securities; or (2) engaging in transactions in puts, calls or other derivative securities designed to hedge or offset any decrease in the market value of the Company’s equity securities, on an exchange or in any other organized market.

 

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Investor Outreach and the 2013 Say-on-Pay Vote

 

 

As required under the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the Company conducts an annual advisory vote on executive compensation, commonly referred to as “Say On Pay.” While the votes are not binding, the Committee believes that an annual “Say On Pay” advisory vote offers stockholders the opportunity to express their views regarding the Company’s compensation program and the Committee’s decisions on executive compensation. The Board and the Committee value the opinions of our stockholders and each year the Committee considers stockholders’ concerns and evaluates whether any actions are necessary to address those concerns.

At our 2013 Annual Meeting of Stockholders, 65.4% of the votes cast with respect to our “Say On Pay” proposal were voted in favor of the Company’s named executive officer compensation as disclosed in the proxy statement related to that meeting. However, the number of votes cast in favor of the named executive officer compensation significantly decreased last year as compared to our historical approval ratings. The Committee believes that the shareholders who did not vote in favor of the proposal at last year’s annual meeting were likely to have relied to a significant degree on a negative vote recommendation by the proxy advisory firm Institutional Shareholder Services (ISS), which highlighted certain issues pertaining to our employment agreements with our current and former Chief Executive Officers.

Following receipt of the negative vote recommendation from ISS, the Company determined that it would benefit from additional engagement with our stockholders, together with a thorough review of our compensation programs and policies. Management contacted our top 50 institutional stockholders, offering to discuss our executive compensation programs and any concerns or issues these stockholders might have, including certain issues identified by ISS. A series of telephone discussions were held with institutional stockholders (representing, in aggregate, over 30% of our common shares outstanding) to understand their perspectives and receive feedback on our compensation program. All of these meetings were attended by one or both of Kurt J. Hilzinger, our Lead Director during 2013, and William J. McDonald, the Chair of our Organization & Compensation Committee. The discussions focused on certain issues highlighted by ISS in its report, an overview of our current compensation program and philosophy, and an informed open-format discussion designed to elicit feedback on our compensation program. During the calls, the Company also encouraged our stockholders to reach out at any time regarding issues or concerns they might have with our compensation program.

At these meetings, we heard feedback related to our Company’s performance and our employment agreements with our current and former Chief Executive Officers. Stockholders generally noted that they were pleased with our Company’s financial performance and our overall compensation program. A few shareholders noted issues similar to those raised by ISS, but the overwhelming majority did not believe that our compensation program and philosophy were out of line with industry standards. Our Organization & Compensation Committee took into account the results of this investor outreach in its continuing consideration of the Company’s compensation policies and decisions, and determined to pursue certain adjustments to our employment agreement with Mr. Broussard to more closely align with best practices for governance and compensation. For a detailed description of these adjustments, please refer to the section entitled “Compensation of our President and Chief Executive Officer” in this proxy statement.

We believe that our stockholder outreach process continues to strengthen our understanding of our stockholders’ concerns and the issues on which they are focused, which in turn is reflected in our stockholders’ satisfaction with our compensation program. We therefore continue to believe in the importance of engaging with our stockholders on a regular basis.

 

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Our Compensation Program

Compensation Philosophy

 

 

Our Named Executive Officer compensation includes direct compensation that is:

 

   

Market-based — Competitive with our peer group and general industry standards, with total compensation targeted on average at market medians, but typically ranging from the 25th to 75th percentiles, depending on the level of competency and contribution;

 

   

Competency-paced — Flexible enough to match the progress of fast-rising performers but resistant to salary advancement for those whose competency level has remained static; and

 

   

Contribution-driven — Reward those who make a difference, creating meaningful compensation distinctions among different levels of performance and achievement, while avoiding annual compensation actions that foster an “entitlement mentality.”

Named Executive Officer compensation also includes indirect compensation in the form of a mix of cost-effective benefit programs that promote security and well-being, including health benefits, life and disability coverage that provides income protection, retirement plans, and services accessed or purchased on a group basis to assist in the maintenance of an appropriate work/life balance.

In determining compensation for our Named Executive Officers, other than our Chief Executive Officer, the Committee solicits input from the Chief Executive Officer regarding the duties and responsibilities of our Named Executive Officers and the results of his evaluations of their performance. The Chief Executive Officer, with guidance from the Company’s Human Resources Department, discusses with the Committee the Chief Executive Officer’s recommendations for the compensation of his direct reports and the rationale for those recommendations. The Committee’s independent compensation consultant provides guidance to the Committee when determining the compensation of the Chief Executive Officer and the other Named Executive Officers. The Committee independently makes all compensation decisions with respect to our executive officers. The Committee also considers the appropriate levels of compensation necessary to attract and retain exceptional talent.

Compensation Risk Determination

 

 

In 2013, the Committee assessed the risks associated with the Company’s compensation practices and policies for employees, including a consideration of the counterbalance of risk-taking incentives and risk-mitigating factors in Company practices and policies. Following this assessment, the Committee determined that the risks arising from the Company’s compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

External Benchmarking

 

 

We benchmark our compensation practices to other publicly traded companies that are comparable to us in significant ways. For Named Executive Officers, we use comparisons from competitors within our peer group, based on revenue size and market capitalization, as well as our closest industry competitors. Using different screening criteria (e.g., line of business, industry, market cap, etc.) yields multiple perspectives that enrich our understanding of competitive executive pay practices. Company comparators are reviewed every year to ensure continued appropriateness of our compensation program. We believe benchmarking with reference to comparable companies provides the Company with the most comprehensive means of ensuring that our senior-level compensation is market-competitive.

 

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We believe our peer group is comprised of companies with whom we compete for talent and whose revenues, market capitalization, and business focus are similar to ours. For 2013 compensation determinations, with advice from the Committee’s independent compensation consultant, the Committee approved the following peer group of public companies to serve as our peer group:

 

Aetna Inc.

  Coventry Health Care, Inc.(1)   McKesson Corporation   The Travelers Companies, Inc.
AFLAC Inc.   DaVita Healthcare Partners Inc.   Progressive Corp.   UnitedHealth Group, Inc.
The Allstate Corp.   Eli Lilly and Company   Prudential Financial, Inc.   Unum Group
Amerisource Bergen   Express Scripts Holding Co.   The Travelers Companies, Inc.   Wellpoint, Inc.
Cardinal Health, Inc.   Hartford Financial Services Group   UnitedHealth Group, Inc.  
CIGNA Corporation   Health Net, Inc.   Unum Group  

 

  (1) Because Coventry Health Care, Inc. was acquired by Aetna Inc. in May 2013, it is no longer part of our peer group.

We use this competitive market data and the overall performance of the Company as the starting points for our analysis, conducted with the assistance of the Committee’s independent compensation consultant. In addition, the Committee takes into consideration an executive’s overall performance, his or her potential, the presence of any unique or hard-to-replace skills, as well as the executive’s judgment, leadership ability and competencies. The performance of the executive’s business function and his or her ability to build effective teams and develop talent are also important factors.

Internal Benchmarking

 

 

The total compensation of each Named Executive Officer is also determined based in part on an internal benchmarking that considers the relativity of pay between all the Named Executive Officers and the total compensation of the Chief Executive Officer. The Company and the Committee believe that appropriate internal pay equity:

 

  (i) leads to better employee relations and a stronger company, as it avoids a disconnect in compensation across a group of Named Executive Officers that must work together as a cohesive team;

 

  (ii) is economical, as it provides the Committee with a more balanced “check” of total compensation, rather than relying solely on external benchmarking data that may only compare each pay element independently; and

 

  (iii) mitigates market bias that may favor certain positions but does not reflect their relative importance to the Company.

The Company prepares tally sheets for all of its executive officers as a reference point for the Committee as it determines whether executive compensation decisions are appropriate in the context of the Company’s compensation philosophy and performance. Tally sheets summarize current actual and target compensation, equity holdings (stock options, restricted stock, restricted stock units and performance-based restricted stock awards), retirement and deferred compensation values, and potential payouts upon termination of employment.

Each year, our Chief Executive Officer conducts an informal analysis of internal pay equity, taking into account each Named Executive Officer’s individual contributions, performance, potential, skills, judgment, leadership ability and competencies, and makes a recommendation to the Committee regarding relativity of compensation. Although the Committee does not have established target ratios or a formula for calculating the relative compensation of the Chief Executive Officer as compared to each Named Executive Officer, or for each Named Executive Officer as compared to any other, the Committee does, in its discretion, review historical pay

 

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ratios to ensure that the compensation of one Named Executive Officer has not unintentionally risen in a disproportionate manner relative to the others. Following a discussion among the Committee, the Chief Executive Officer and our independent compensation consultant, the Committee considers this informal analysis of internal pay equity in making executive compensation decisions. For 2013, the Committee concluded that the relative levels of compensation among the Named Executive Officers were appropriate.

Elements of Compensation

The discussion below provides information about the various elements of our 2013 compensation program for our Named Executive Officers, including base salary, annual cash incentives, equity awards, retirement plans, severance, and perquisites.

At a Glance – Our Primary Compensation Elements

 

 

 

Compensation Element    Objective    Key Features

Base Salary

   Ensure the attraction, development and retention of superior talent while also taking into account an individual executive’s performance.   

Represents the fixed portion of the total compensation package, determined based on:

 

•    overall Company performance;

 

•    individual Named Executive Officer performance;

 

•    internal pay equity;

 

•    changes in individual Named Executive Officer responsibilities; and

 

•    relevant external benchmarking.

Annual Cash Incentive

  

Ensure that a portion of each Named Executive Officer’s cash compensation is “at risk” by linking such portion of compensation to certain key performance objectives.

 

Motivate and reward achievement of short-term financial, operational and strategic business goals.

  

We use performance-based annual cash incentive awards to recognize the achievement of annual Company results and align our Named Executive Officers with the same incentives as our stockholders. The amounts paid are based on percentages of 2013 base earnings that:

 

•    are paid at threshold, target and maximum levels based on the attainment of pre-established earnings per share objectives;

 

•    were established through a process of external benchmarking of total compensation against our external peer group; and

 

•    reflect our philosophy of targeting total compensation at the median of our external peer group, while recognizing that a significant percentage of total compensation should be performance-based.

 

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Compensation Element    Objective    Key Features

Equity Awards

   Provide a vital link between the long-term results achieved for our stockholders and the financial rewards provided to our Named Executive Officers.   

We use a mix of stock options, restricted stock units and performance-based restricted stock units to compensate our Named Executive Officers, which we believe provides an appropriate balance between inducement, retention and motivation of executives and the creation of stockholder value.

 

The amounts and terms of equity awards are set by the Committee following a review of stock programs and competitive practices at peer companies, along with an analysis of equity cost.

 

For 2013, one-half of our Named Executive Officers’ equity compensation was granted in the form of performance-based equity awards. The performance criteria for these awards are based upon three-year cumulative goals for (a) strategic membership growth and (b) return on invested capital less weighted average cost of capital.

Compensation of our President and Chief Executive Officer

 

 

On November 2, 2012, we entered into an amended and restated employment agreement with Mr. Bruce D. Broussard, our President and Chief Executive Officer, which we refer to as the 2012 Broussard Employment Agreement. The 2012 Broussard Employment Agreement provided for the following compensation elements:

 

   

Annual base salary of not less than $1,085,000

 

   

Target annual incentive equal to 150% of his base salary and a maximum annual incentive equal to 150% of his target incentive (i.e., 225% of his base salary)

 

   

A long-term incentive award to be granted in February 2013 with a value of $5,000,000 (determined on the same basis as the Committee values such awards generally) and in a form and on terms consistent with the long-term incentive awards to be granted in 2013 to our other senior executives

 

   

Participation in all benefit plans, including retirement plans and perquisites, made available by the Company to other senior executives.

In assessing the reasonableness of the package offered to Mr. Broussard for 2013, the Committee undertook a thorough and thoughtful process to consider an evaluation of his responsibilities and experience, both at the Company during our year-long transition plan and in his prior employment, the compensation packages of companies experiencing executive leadership transitions similar to ours, compensation packages for new executive officers at peer and other public companies, publicly-available executive compensation information of peer companies, internal pay equity, competitive market and retention objectives, severance package best practices, challenges facing our industry, and incentives needed to continue to motivate and reward exceptional performance by our executive officers. While the Board believed that each of the provisions of Mr. Broussard’s employment agreement were in and of themselves reasonable, the Board also believed that the overall terms of his employment agreement were appropriate when considered in light of Mr. Broussard’s total compensation and the Company’s historical practice of encouraging pay-for-performance through a compensation program that is market-based, competency-paced and contribution-driven.

 

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Following extensive engagement with our stockholders during 2013, the Committee determined to pursue certain adjustments to our employment agreement with Mr. Broussard to more closely align with best practices for governance and compensation.

Effective February 27, 2014, we entered into an amended and restated employment agreement with Mr. Broussard, which we refer to as the Current Broussard Agreement. The Current Broussard Agreement provides for the following compensation elements:

 

   

Annual base salary of not less than $1,120,000;

 

   

Target annual incentive equal to 150% of his base salary and a maximum annual incentive equal to 150% of his target incentive (i.e., 225% of his base salary);

 

   

A long-term incentive award to be granted in February 2014 with a value of $6,750,000 (determined on the same basis as the Committee values such awards generally) and in a form and on terms comparable to the long-term incentive awards to be granted in 2014 to our other senior executives; and

 

   

Participation in all benefit plans, including retirement plans and perquisites, made available by the Company to other senior executives.

In addition, while our stockholders generally noted that they were pleased with our financial performance and our overall compensation program, a few stockholders noted potential issues with the 2012 Broussard Employment Agreement. Our Committee took into account the results of our investor outreach in negotiating the Current Broussard Agreement, and the following highlights certain additional changes:

 

Potential Issues Noted with the

2012 Broussard Employment Agreement

 

Treatment in the

Current Broussard Agreement

The agreement was not for a fixed term, but provided for automatic successive one-year term renewals absent notice.   The agreement is for a fixed term ending on December 31, 2018.
If the Company had not renewed the agreement and Mr. Broussard had voluntarily resigned after the agreement had terminated, he would have been entitled to cash severance and acceleration of outstanding equity awards.   This provision has been removed.
In the event of termination following a change in control, Mr. Broussard’s outstanding equity awards would have automatically accelerated.   In the event of termination following a change in control, and with respect to equity awards granted after December 31, 2013, a pro-rated portion of all time-based awards other than stock options will vest, all unvested stock options will be forfeited, and a pro-rated portion of all performance-based equity awards will continue to vest according to their original schedule and ultimately vest based on the actual level of performance attained.
In the event of termination following a change in control, Mr. Broussard would have received cash severance based on base salary and maximum bonus payout.   In the event of termination following a change in control, Mr. Broussard will receive cash severance based on base salary and target bonus payout.

 

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Base Salary

 

 

Base salary for our Named Executive Officers is determined by an assessment of:

 

   

overall Company performance;

 

   

individual Named Executive Officer performance, including commitment to our values, which are the guiding forces behind all our actions – Inspire Health, Cultivate Uniqueness, Rethink Routine, Pioneer Simplicity, and Thrive Together;

 

   

internal pay equity;

 

   

the need to attract, motivate and retain qualified executives in a highly-competitive market;

 

   

changes in individual Named Executive Officer responsibilities; and

 

   

relevant external benchmarking.

While vital aspects of performance can be measured in financial terms, we also evaluate executive management in areas that must be assessed more subjectively. These areas include the development and execution of strategic plans, the exercise of leadership in the development of management talent, innovation and improvement in our products and processes, as well as the executive’s involvement in industry groups and in the communities that we serve.

Base salary levels are established to ensure the attraction, development and retention of superior talent while also taking into account an individual executive’s performance. For our Named Executive Officers, base salaries were established, in conjunction with other components of total compensation, to approximate the market median.

As in prior years, the Committee reviewed base salary information developed by our human resources associates and our compensation consultant to establish market median data. We generally target the market median when establishing individual salaries, and they typically range from the 25th to the 75th percentile, although we also recognize the need to attract, motivate and retain qualified executives in a highly-competitive market. Annualized base salaries of the Named Executive Officers in 2013 and their relationship to market medians are listed in the table below.

 

Named Executive

Officer

   2013 Base Salary(1)    2013 Market Median(2)

Bruce D. Broussard

   $1,085,000    $1,100,000

James H. Bloem

   $637,500    $700,000

James E. Murray

   $765,000    $711,000

Timothy S. Huval

   $525,000    $575,000

Jody L. Bilney

   $525,000    $575,000

 

  (1) For each Named Executive Officer, the amounts disclosed represent the annualized base salary for 2013.

 

  (2) Based on relevant external benchmarking of Named Executive Officers and the proxy statements of the peer group.

Annual Cash Incentives

 

 

Incentive Plan Objectives

Our annual incentive compensation plans ensure a portion of each Named Executive Officer’s compensation is “at risk” by linking such portion of compensation to certain key performance objectives and rewarding them, when appropriate, for their efforts in optimizing our profitability and growth consistent with sound and ethical business practices and appropriate risk-taking.

 

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Description of the Plan for Named Executive Officers

The Humana Inc. Executive Management Incentive Compensation Plan, which we refer to as the Management Incentive Plan, is administered by the Committee. The Committee annually selects those executive officers and other key executives eligible to participate in the Management Incentive Plan and establishes specific performance targets based on predetermined business goals, and an objective formula or standard to determine the minimum and maximum awards payable to each participating executive. The Committee has sole discretion to determine the form, amount and terms of each award, which need not be uniform among the persons eligible to receive awards. The Committee may determine at the time the performance targets are established that certain adjustments will be made in evaluating whether the performance targets have been met (e.g., disposition or acquisition of a business, gains or losses resulting from material litigation, or the effect of changes in accounting principles during the performance period). During 2013, each of our Named Executive Officers participated in the Management Incentive Plan.

2013 Management Incentive Plan Compensation

For all Named Executive Officers, the 2013 performance target was based on the attainment of a pre-established earnings per share, or EPS, objective. The Committee selected this single performance target because it believed that those individuals with the greatest responsibility for the strategy, implementation and success of the organization should have a substantial portion of their compensation linked to the achievement of this financial goal. The Committee felt that attainment of an EPS goal was the best reflection of the success of our financial objectives and business plan, and the goal was therefore established to provide a direct link between executive compensation and this key performance objective of the Company.

For 2013 there were threshold, target and maximum achievement payout levels that impacted the final value of the award for our Named Executive Officers. The EPS target for 2013 of $7.70 was based on our business plans and also considered the earnings per share guidance that we provided during the year to our stockholders. The target was considered a challenging goal, based on the prospects of our businesses, including the impact of health care reform and an uncertain economy. Performance below the threshold of $7.16 EPS would yield no award. The maximum EPS of $8.24 was set to encourage increased performance within a tolerable level of risk.

The percentages of 2013 base earnings paid at each of the threshold, target and maximum levels were established through a process of external benchmarking of total compensation against our external peer group. These percentages reflect our philosophy of targeting total compensation at the median, while recognizing that a significant percentage of total compensation should be performance-based.

The following summarizes the results of the Company’s external benchmarking of the companies comprising the Company’s peer group with respect to annual incentive compensation:

 

      Target Bonus Opportunity
(as a percentage of  base salary)
    Maximum Bonus Opportunity (as a
percentage of base salary)
 
      Humana(1)     Peers(2)     Humana(1)     Peers(2)  
CEO/President      150     150     225     300
Other Named Executive Officers      100     100     150     200

 

  (1) Percentages based on 2013 compensation, as reported in this proxy statement.

 

  (2) Percentages based on 2012 compensation, as used by the Committee in external benchmarking to set 2013 compensation. The target and maximum bonus opportunities of the peer group were based upon the median percentage in each case.

 

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The following table sets forth the potential range of payments our Named Executive Officers could have earned under the Management Incentive Plan, expressed in total dollars and as a percentage of 2013 annual base salary:

 

Named Executive Officer   2013 Base
Salary(1)
   

Threshold

EPS of $7.16

   

Target

EPS of $7.70

   

Maximum

EPS of $8.24

 
   

% of

Base

    MIP Payment     % of
Base
    MIP
Payment
    % of
Base
    MIP
Payment
 

Bruce D. Broussard

  $ 1,085,000        75   $ 813,750        150%      $ 1,627,500        225%      $ 2,441,250   

James H. Bloem

  $ 637,500        50   $ 318,750        100%      $ 637,500        150%      $ 956,250   

James E. Murray

  $ 765,000        50   $ 382,500        100%      $ 765,000        150%      $ 1,147,500   

Timothy S. Huval

  $ 525,000        50   $ 262,500        100%      $ 525,000        150%      $ 787,500   

Jody L. Bilney

  $ 525,000        50   $ 262,500        100%      $ 525,000        150%      $ 787,500   

 

  (1) For each Named Executive Officer, the amounts disclosed represent the annualized base salary for 2013.

Our EPS for 2013 increased to $7.73, including the $0.99 per share of benefits expense for our closed block long-term care insurance policies reserve strengthening. When this performance was considered by the Committee in light of the over-performance of our strategic business lines, the Committee decided to award payments to our Named Executive Officers as if the Company had achieved at the maximum level as provided in the table above. In arriving at this determination, the Committee considered the need to preserve the intended incentives and benefits of our Management Incentive Plan structure, the fact that the reserve strengthening was extraordinary and unusual in nature, and that most of our strategic business lines had performed significantly above management’s expectations in 2013. See the Summary Compensation Table in the Executive Compensation section of this proxy statement for the specific amounts paid to the Named Executive Officers.

Equity Awards

 

 

In 2013, we used a mix of stock options, restricted stock unit and performance-based stock unit awards to compensate our Named Executive Officers, an equity compensation program which we believe provides an appropriate balance between inducement, retention and motivation of executives and the creation of stockholder value. Equity-based compensation provides a vital link between the long-term results achieved for our stockholders and the financial rewards provided to our Named Executive Officers. We use a mix of stock options, restricted stock unit and performance-based stock unit awards to compensate our Named Executive Officers because we believe that each form of equity compensation provides us with different benefits.

 

   

Stock Options. The value recognized under our stock option grants reflects the economic performance of the Company over time. We use stock options to motivate and challenge our executives to achieve positive returns for our stockholders by placing key elements of executive compensation at risk, with a secondary benefit of retention derived from vesting conditions imposed on the stock options and a non-compete covenant embedded in our stock option agreements.

 

   

Time-Based Restricted Stock Units. Restricted stock units generally provide value regardless of whether our stock price increases from the date of grant. We use restricted stock unit grants for inducement, retention purposes through time-based vesting conditions imposed on the restricted stock units and a non-compete covenant embedded in our restricted stock unit agreements, and to motivate and challenge our executives. A secondary benefit is derived from the potential added appreciation opportunity as our stock price increases. Generally, awards of restricted stock units vest fully three years from the date of grant, subject to continued employment with the Company through the vesting date.

 

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Performance-Based Restricted Stock Units. In 2013, our Committee determined to award each Named Executive Officer a performance-based equity award in the form of restricted stock units, with vesting at the end of three years contingent upon our achievement of specified financial and business growth targets over the vesting period and continued employment with the Company through the end of the vesting period. We use performance-based restricted stock units to further align the economic incentives of our Named Executive Officers to those of our stockholders.

All equity awards are granted at regularly scheduled meetings of our Board of Directors, or of the Committee, although the Committee may also approve equity grants to newly-hired executive officers, or in connection with acquisitions of new companies, at the Board or Committee meeting at which such activity is approved. The Committee, with the assistance of our independent compensation consultant and management, determines the aggregate amounts and terms of stock option, restricted stock and performance-based restricted stock awards for each Named Executive Officer following a review of stock programs and competitive practices at peer companies, along with an analysis of equity cost.

The grant value of each award reflects the executive’s level of responsibility and contributions to the Company’s performance. In making equity awards, the Committee reviews and approves the dollar value of an award to be granted to each Named Executive Officer, based on the internal and external benchmarking of total compensation discussed above. The number of shares subject to the award is then determined using the fair market value of the option on the grant date, which, in the case of stock options, is determined by the Black-Scholes methodology.

With respect to external benchmarking, the Committee uses competitive market data as a starting point for its analysis of the compensation of the Company’s Named Executive Officers. The companies in our peer group utilize a mix of stock options, restricted stock units, performance shares/units, and cash incentive plans for long-term incentive compensation. The following summarizes the results of the Committee’s external benchmarking with respect to total direct compensation (comprised of base salary, cash incentive plan and equity long-term incentive compensation):

 

Named Executive Officer   

Humana
Target

Total Direct
Compensation

    

Market
Median

Total Target
Direct
Compensation

 

President and Chief Executive Officer

   $ 7,712,500       $ 10,789,000   

Chief Financial Officer

   $ 3,025,000       $ 4,010,000   

Chief Operating Officer

   $ 3,530,000       $ 3,950,000   

Fourth Highest-Paid Executive

   $ 2,400,000       $ 2,637,000   

Fifth Highest-Paid Executive

   $ 2,400,000       $ 2,637,000   

Our stockholder-approved equity incentive compensation plans, the “2003 Stock Incentive Plan” and the “2011 Stock Incentive Plan,” each provide that all stock options are granted at the average of the high and low stock trading price on the NYSE composite tape (fair market value) on the date of grant. For the last several years, the annual Company-wide stock option, restricted stock and performance-based restricted stock awards have been made at the Committee meeting held in the first quarter of the year, following the announcement of our annual results for the prior year. The Board and Committee schedules are determined more than a year in advance. In addition to the annual grant, options, restricted stock and/or restricted stock units are generally granted for promotions, new hires, retention purposes, or increases in responsibilities at the six regularly scheduled meetings of the Board or the Committee. As noted above, the Committee may approve equity grants in connection with new hires of executive officers and/or acquisitions by the Company at special meetings of the Board or Committee.

 

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2013 Awards

In 2013, our Named Executive Officers were awarded long-term equity incentive grants designed, in conjunction with other components of total compensation, to be competitive in relation to the market median, as described above. Our Named Executive Officers were awarded 25% of their equity grants in the form of stock options, 25% in the form of restricted stock units with time-based vesting, and 50% in the form of performance-based restricted stock units with performance criteria for these latter awards based upon three-year cumulative goals for (a) strategic membership growth and (b) return on invested capital less weighted average cost of capital (ROIC-WACC). Due in part to the many challenges facing our industry, the Committee believes that the strategic membership growth and ROIC-WACC goals are challenging and will require superior performance to achieve either the target or maximum payout levels. The Committee based the performance goals on strategic membership growth and ROIC-WACC because it believes that, at this time, the combined use of these metrics are the most comprehensive factors for driving sustainable growth and returns in the Company’s business.

In this proxy statement, the table entitled, “Grants of Plan-Based Awards,” shows the number of stock options, restricted stock and performance-based units awarded to each Named Executive Officer and the aggregate grant date fair value for each award, the table entitled, “Summary Compensation Table,” reports the aggregate grant date fair value of awards for each fiscal year, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation — Stock Compensation,” and the table entitled “Outstanding Equity Awards at Fiscal Year-End,” lists the equity awards outstanding by grant date and price for each Named Executive Officer.

The Committee routinely reviews the outstanding equity information for each executive officer to examine the value of prior compensation decisions. The value of outstanding equity awards may be taken into account in establishing the level of equity awards to be made.

Retirement Plans

 

 

During 2013, we had three retirement plans covering our Named Executive Officers:

 

   

The Humana Retirement Savings Plan, which we refer to as the HRSP, is a qualified, 401(k) plan providing for both participant and Company contributions, and is available to all associates;

 

   

The Humana Retirement Equalization Plan, which we refer to as the HREP, is a nonqualified, unfunded, defined contribution plan that restores Company contributions to the Humana Retirement Savings Plan, which are restricted by Internal Revenue Code, or IRC, compensation limits; and

 

   

The Humana Inc. Deferred Compensation Plan, or the Deferred Compensation Plan, an unfunded plan maintained for the purpose of providing to a group of highly compensated executives a vehicle to defer a portion of their annual performance-based cash income for purposes of personal savings and tax planning. There are no Company contributions to this plan. For 2013, none of the Named Executive Officers participated in the Deferred Compensation Plan.

For additional details on our retirement plans see the table entitled “Nonqualified Deferred Compensation” which covers the HREP and the Deferred Compensation Plan, and the section entitled “Potential Payments Upon Termination or Change in Control,” which discusses all of our retirement plans.

We believe that our retirement programs will provide our executives with competitive levels of income replacement upon retirement, reflecting the executive’s years of service with our Company, and provide us with a package that will both attract and retain key talent in the Company.

 

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Severance/Change in Control

 

 

Mr. Broussard

Effective February 27, 2014, we entered into an amended and restated employment agreement with Mr. Broussard, our President and Chief Executive Officer, which we refer to as the Current Broussard Agreement, which would govern any severance or change in control payments for Mr. Broussard. There are no excise tax gross-up provisions in the Current Broussard Agreement. For a description of the severance benefits to which Mr. Broussard would be entitled upon a termination of employment, see the section entitled “Potential Payments Upon Termination or Change in Control of the Company” in this proxy statement.

Other Named Executive Officers

The Company maintains a severance policy, which we refer to as the Severance Policy, for all of our Named Executive Officers, except for Mr. Broussard (whose severance payments are covered by the Current Broussard Agreement). The Severance Policy provides our Named Executive Officers with severance benefits upon certain qualifying terminations of employment, with such benefits calculated based on their years of service with the Company, with a minimum of one year of annual base salary for each Named Executive Officer. In connection with receiving benefits pursuant to the Severance Policy, the Named Executive Officer is required to enter into a written agreement that forbids him or her from competing for a period of twelve months and the written agreement will also provide for specific provisions relating to non-disparagement and cooperation. For a discussion of the payments each of our Named Executive Officers would receive in the event of a termination of employment that qualifies for severance pursuant to the Severance Policy, see the section entitled “Potential Payments Upon Termination or Change in Control of the Company” in this proxy statement.

In addition, we operate in a highly competitive, complex and consolidating industry. Therefore, we have entered into Change in Control severance agreements, which we refer to as CIC Agreements, with all executive officers, including our Named Executive Officers (except for Mr. Broussard, whose severance in the event of a Change in Control would be governed by the Current Broussard Agreement). Pursuant to the CIC Agreements, in the event that the executive’s employment is terminated by the Company without Cause or by the executive for Good Reason within twenty-four months following a Change in Control (as each term is defined in the CIC Agreements), or by the Company without Cause under certain circumstances prior to a Change in Control, certain benefits will be provided to these executives.

As of December 31, 2013, under the CIC Agreements, these individuals would have been entitled to receive severance pay generally determined by multiplying the sum of each individual’s annual base salary and the maximum target incentive compensation payable to him or her, by a multiple ranging from one to one and one-half. In February 2014, we entered into amendments to the CIC Agreement between us and each Named Executive Officer that provides that the payment owed in the event of a Change in Control would be limited in all circumstances to a multiple of annual base salary and target incentive compensation. Therefore, from and after January 1, 2014, each of the Named Executive Officers (except for Mr. Broussard, whose severance in the event of a Change in Control would be governed by the Current Broussard Agreement) would receive a payment in the amount of one and one-half times the sum of his or her base salary and target incentive payment in the event of a termination of employment under the circumstances described above. Health, life and disability insurance coverage would be provided, generally for a two-year period following termination unless the participant dies or is eligible for comparable coverage from another source.

All of the CIC Agreements (including the Change in Control provisions of the Current Broussard Agreement) provide for severance benefits payable only upon a “double trigger” (i.e., two events must occur before any severance payment is made: the executive officer must be terminated or constructively terminated as described in the CIC Agreement, and such termination must have occurred during a specified period after the Company entered into a definitive agreement, the consummation of which would result in a Change in Control, or the Change in Control has occurred), although the executives may be entitled to accelerated vesting of equity

 

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compensation solely upon the occurrence of a change in control pursuant to the terms of the applicable award agreement as described in more detail herein. The Committee opted for a “double-trigger,” rather than providing for payments solely on the basis of a Change in Control, because we believe this to be more consistent with the purpose of encouraging the continued employment of our Named Executive Officers following a Change in Control. In the health benefits industry, mergers and acquisitions resulting in a Change in Control are common. We believe that the CIC Agreements for our Named Executive Officers allow our executives to devote their time to the duties of running our Company without being distracted by a potential Change in Control. Furthermore, the CIC Agreements have a significant retention value to the Company with respect to our Named Executive Officers. We believe that the severance multiples provided for in the CIC Agreements are appropriate because they are comparable to similarly situated senior executives across U.S. industries. For a discussion of the payments each of our Named Executive Officers would receive in the event of a termination of employment in connection with a Change in Control or in the event of a termination of employment in other circumstances, see the section entitled “Potential Payments Upon Termination or Change in Control of the Company” in this proxy statement.

Perquisites

 

 

We also provide certain other benefits to our Named Executive Officers as part of our competitive compensation program. The amounts expended through these programs are explained in detail in the footnotes that follow the Summary Compensation Table. As noted, not all Named Executive Officers participate in each benefit. The benefits include limited personal use of Company aircraft for the Named Executive Officers, an annual physical, a matching charitable gift program, supplemental life insurance benefits, financial planning assistance, commuting and local housing allowances, and club memberships (used for business purposes; if from time to time used for personal reasons, the executive must reimburse the Company).

 

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Other Compensation Considerations

Compensation Mix

 

 

The key elements of direct executive compensation — salary, cash incentives, and equity awards — are designed to place a substantial portion of executive pay at risk. While salaries are intended to be assured, the other two elements only have value if certain key performance results are achieved. Cash incentives are paid only upon the achievement of defined financial objectives. Grants of stock options only have value to executives if the value of the Company increases through common stock price appreciation and any applicable vesting conditions are satisfied, providing a retention benefit to the Company.

We believe that having a larger measure of key pay elements at risk motivates and challenges our executives to achieve positive returns for our stockholders, reflecting our philosophy that, in addition to being market-based, the total compensation of our Named Executive Officers should be competency-paced and contribution-driven. The chart and table below illustrate the relative mix of pay at risk in 2013 for our Named Executive Officers, comprised of base salary, the potential value of the target annual cash incentive earned in 2013 though paid in 2014, and the aggregate grant date fair value of the 2013 grants of stock options (based on a Black-Scholes valuation at the time of grant), restricted stock unit awards and performance-based unit awards. See the tables entitled “Summary Compensation Table” and “Grants of Plan-Based Awards” that follow this report for greater detail.

 

LOGO

 

             Compensation At Risk 2013(1)         
Named Executive
Officer
   Base
Salary
    Target
Annual
Incentive
    Long-
Term
Incentive
    Total  

Bruce D. Broussard

     11     16     74     100

James H. Bloem

     16     16     67     100

James E. Murray

     17     17     66     100

Timothy S. Huval

     17     17     66     100

Jody L. Bilney

     21     21     58     100

Average for NEOs:

     15     17     68     100

 

  (1) Long-term incentive compensation includes aggregate grant date fair value of stock option awards and restricted stock unit awards, and target value of performance-based equity awards. Base salary includes any sign-on or guaranteed bonuses paid in 2013.

 

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Clawbacks

 

 

In 2009, the Committee adopted a clawback policy to supplement those provisions set forth in the Sarbanes-Oxley Act of 2002 and related regulations.

The clawback policy:

 

   

applies to all executive officers;

 

   

permits the recoupment of compensation in the event of a material restatement of the Company’s financials as a result of the misconduct or fraud on the part of the executive officer;

 

   

permits the recoupment of all cash-based incentives earned by the executive officer involved in the misconduct or fraud during the twelve month period following the first public issuance of the financials that are the subject of the restatement; and

 

   

grants discretion to the Committee with respect to the application of the clawback provision.

Stock Ownership Guidelines

 

 

The Board believes that linking a significant amount of an executive’s current and potential future net worth to the Company’s success, as reflected in the stock price, gives the executive a stake similar to that of our stockholders. Consequently, the Board of Directors has established stock ownership guidelines for the Company’s executive officers.

Expressed as a multiple of base salary, minimum levels of Humana common stock ownership, excluding shares held in retirement accounts and unexercised stock options, are:

 

  Chief Executive Officer:

   Five times base salary

  Direct reports to the Chief Executive Officer
    (including all Named Executive Officers):

   Three times base salary

  All other Section 16 officers:

   Two times base salary

In addition, the stock ownership guidelines provide that any shares owned by an executive officer (or shares received upon the exercise of stock options or vesting of restricted stock or restricted stock units, less an amount to cover current tax liabilities) must be held by the executive officer until the relevant multiple is reached and thereafter maintained.

Compensation Policies Based on Certain Tax Rules

 

 

The American Jobs Creation Act of 2004 materially changed the tax rules applicable to nonqualified deferred compensation arrangements, codified in Section 409A of the Internal Revenue Code (“Section 409A”). Section 409A provides that compensation deferrals under nonqualified deferred compensation plans, like the Company’s Supplemental Plan, are currently counted as gross income for all taxable years to the extent that the amounts are not subject to a substantial risk of forfeiture and have not previously been included in gross income, unless certain requirements are met. We believe that the HREP, the CIC Agreements, the Management Incentive Plan, the Deferred Compensation Plan, and our severance program are in compliance with the statutory provisions currently in effect so that any compensation payable under the plans either is not considered deferred compensation under Section 409A or is deferred in a manner that complies with Section 409A.

 

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Consideration of Advisory Votes

 

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (which we refer to as the Dodd-Frank Act), requires that we include in our proxy statement a non-binding advisory stockholder vote to approve the compensation of our Named Executive Officers as described in the Compensation Discussion and Analysis section, the compensation tables and the accompanying narrative disclosure, set forth in the proxy statement for that meeting (commonly referred to as a “Say-on-Pay” vote). At our 2011 Annual Meeting, our stockholders voted for the approval of an annual advisory vote with respect to our Named Executive Officer compensation, and our Board of Directors considered and accepted this stockholder vote and management’s recommendation regarding the frequency of future stockholder advisory votes.

Last year, at our 2013 Annual Meeting of Stockholders, our stockholders again voted their approval of the compensation of our Named Executive Officers with approximately 63.4% of the votes cast. The Committee has considered the results of this advisory vote in determining the Company’s compensation policies and decisions for 2013, and has determined that these policies and decisions are and have been appropriate and in the best interests of the Company and its stockholders at this time. For additional information regarding the 2013 vote, please refer to the section entitled, “Investor Outreach and the 2013 Say-On-Pay Vote” in this proxy statement.

Organization & Compensation Committee

 

 

The current members of the Committee are William J. McDonald, Chairman, W. Roy Dunbar, David A. Jones, Jr. and Marissa T. Peterson. Considering (i) the source of each director’s compensation, including any consulting, advisory or other compensatory fees paid by Humana; and (ii) whether each director has an affiliate relationship with Humana, a subsidiary of Humana or an affiliate of a subsidiary of Humana, the Board determined that each member of the Committee is independent, as defined by the SEC and the NYSE, and are considered “outside directors” under Section 162(m) of the Internal Revenue Code.

During 2013, the Committee met eleven times. The Committee operates pursuant to a charter which is reviewed and approved each year. There were no changes to the Committee’s charter during 2013. The full text of the Committee charter may be viewed on our corporate website. From the www.humana.com website, click on “Investor Relations,” then click on “Corporate Governance,” and then you will see a link to the Committee Charters.

Compensation Consultants

 

 

The Committee retains an independent compensation consultant to ensure that the Committee has objective information needed to make informed decisions in the best interests of stockholders based on compensation trends and practices in public companies, and to provide assistance to the Committee in evaluating our executive compensation policy and programs. The Committee’s independent compensation consultant advises on the interpretation of various rules and regulations impacting executive compensation, reviews with the Committee management’s proposals and initiatives, provides certain data on competitive pay levels, and undertakes special projects on behalf of the Committee.

In April 2013, the Committee approved a change in compensation consultant to Towers Watson, replacing Frederic W. Cook & Co., Inc., or Cook, who had served as its independent compensation consultant since 2004. In addition, in 2013, the Company retained Aon Hewitt to provide certain advice to management regarding executive compensation.

 

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In the case of each of Towers Watson, Cook and Aon Hewitt, the Committee has considered certain factors to determine whether such firm’s service as a compensation consultant raised a conflict of interest, including, among other things:

 

   

Whether the firm provided other services to Humana;

 

   

The amount of fees received by the firm from Humana, as a percentage of such firm’s total revenue;

 

   

The firm’s policies and procedures that are designed to prevent conflicts of interest;

 

   

Whether the firm’s representatives providing services to the Committee have any business or personal relationship with a member of the Committee;

 

   

Whether the firm’s representatives providing services to the Committee own Humana stock; and

 

   

Whether the firm’s representatives providing services to the Committee, or the firm itself, have any business or personal relationship with any of our executive officers.

In 2013, following their retention in April, a representative of Towers Watson attended all of the regularly-scheduled Committee meetings, including, when invited, executive sessions. In accordance with the Committee’s Charter, the Committee has the sole authority to determine the compensation for, and to terminate the services of, Towers Watson. For executive compensation advisory support services provided to the Committee in 2013, we paid Towers Watson approximately $263,500. The Risk Consulting and Services segment of Tower Watson also provided other services to us during 2013, for which we paid Towers Watson approximately $129,000. In 2013, we also purchased various compensation survey data from Towers Watson Data Services segment for an aggregate of $15,000 in fees.

Prior to the retention of Towers Watson in April 2013, a representative of Cook attended all of the Committee meetings, and for services provided to the Committee in 2013, we paid Cook approximately $45,000. In 2013, Cook provided no additional services to the Company.

For consulting services related to communications, retirement, health and benefits, transactional human resources support, and compensation, we paid Aon Hewitt approximately $300,000 in 2013. In addition, we paid approximately $3 million in commissions to Aon Hewitt through its retiree health plan exchange.

After considering the above factors, the Committee determined that the service as a compensation consultant of each of Towers Watson, Cook and Aon Hewitt during 2013 did not raise any conflict of interest.

 

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ORGANIZATION & COMPENSATION COMMITTEE REPORT

The Organization & Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis for the year ended December 31, 2013 with management. In reliance on these reviews and discussions, the Organization & Compensation Committee recommended to the Company’s Board of Directors, and the Board of Directors has approved, the inclusion of this Compensation Discussion and Analysis in this proxy statement.

All members of the Organization & Compensation Committee of the Company whose names follow submit the foregoing report.

ORGANIZATION & COMPENSATION COMMITTEE

William J. McDonald, Chairman

W. Roy Dunbar

David A. Jones, Jr.

Marissa T. Peterson

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

 

 

The following Summary Compensation Table shows the compensation earned for the time period served as an executive officer during the last three fiscal years by (i) Bruce D. Broussard, our President and Chief Executive Officer, (ii) James H. Bloem, our Chief Financial Officer as of December 31, 2013, (iii) each of our three other highest compensated executive officers serving at December 31, 2013 (collectively, the “Named Executive Officers”).

 

Name and Principal

Position

(a)

  Year
(b)
   

Salary

($)

(c)

   

Bonus

($)

(d)

   

Stock

Awards

($)

(e)(1)

   

Option

Awards($)

(f)(2)

   

Non-Equity

Incentive

Plan

Compensation

($)

(g)(3)

   

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)

(h)

   

All

Other

Compensation

($)

(i)(4)

   

Total

($)

(j)

 

Bruce D. Broussard, President and Chief Executive Officer (5)

    2013        1,077,884        —         3,750,021        1,235,534        2,155,768        —         628,859        8,848,066   
    2012        900,000        —         0        0        1,350,000        —         631,154        2,881,153   
    2011        41,538        —         6,999,907        3,488,618        0        —         2,219        10,532,282   

James H. Bloem, Senior Vice President & Chief Financial Officer & Treasurer

    2013        637,019        —         1,312,503        432,436        955,528        —         128,028        3,465,515   
    2012        625,000        —         489,108        926,192        625,000        —         141,215        2,806,515   
    2011        573,250        —         1,825,508        594,740        859,875        —         138,499        3,991,872   

James E. Murray, Executive Vice President & Chief Operating Officer

    2013        764,423        —         1,499,994        494,209        1,146,634        —         203,525        4,108,785   
    2012        750,000        —         838,420        1,587,743        725,000        —         246,317        4,147,480   
    2011        702,478        —         3,060,680        1,024,253        1,053,717        —         211,428        6,052,556   

Timothy S. Huval, Senior Vice President & Chief Human Resources Officer

    2013        504,807        400,000        2,512,568        333,599        757,210        —         358,721        4,866,894   
    2012        —         —         —         —         —         —         —         —    
    2011        —         —         —         —         —         —         —         —    

Jody L. Bilney, Senior Vice President & Chief Consumer Officer

    2013        353,365        300,000        1,124,974        364,813        530,047        —         378,666        3,051,865   
    2012        —         —         —         —         —         —         —         —    
    2011        —         —         —         —         —         —         —         —    

 

(1) The amounts listed under the column “Stock Awards” in the Summary Compensation Table above disclose the aggregate grant date fair value of equity awards granted in the 2013 fiscal year, as well as in prior periods, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation — Stock Compensation.” Performance-based units are disclosed at target value – for a presentation of the ranges of potential values of these performance-based awards at vesting dependent upon the achievement of performance measures, please refer to the table entitled, “Grants of Plan Based Awards” in this proxy statement. The aggregate grant date fair value of each performance-based unit award assuming that the highest level of performance conditions will be achieved is as follows:

 

Bruce D. Broussard

   $ 3,900,023   

James H. Bloem

   $ 1,365,042   

James E. Murray

   $ 1,560,032   

Timothy S. Huval

   $ 1,053,013   

Jody L. Bilney

   $ 1,170,000   

 

(2) The amounts listed under the “Option Awards” column in the Summary Compensation Table above disclose the aggregate grant date fair value of stock option awards granted in the 2013 fiscal year, as well as in prior periods, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation – Stock Compensation.” Note 12 to the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2013, describes the assumptions used to determine the grant date fair value for overall Company stock options.

 

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   The assumptions used for valuing the Named Executive Officers’ stock options as a group, applying the Black-Scholes methodology, were as follows:

 

     2013     2012     2011  

Weighted Average Fair Value at Grant Date

   $ 23.86      $ 32.23      $ 27.99   

Expected Option Life (Years)

     4.7        4.7        4.9   

Expected Volatility

     43.2     47.1     46.4

Risk Free Interest Rate

     0.8     0.8     1.9

Dividend Yield

     1.5     1.1     0.4

 

(3) For a discussion of the potential ranges that could have been earned in 2013 under the Management Incentive Plan, see the Grants of Plan-Based Awards table.

 

(4) The amounts listed under the column entitled “All Other Compensation” in the Summary Compensation Table above include: Company contributions to the Humana Retirement Equalization Plan and the Humana Retirement Savings Plan; personal use of Company aircraft for the Named Executive Officers; a matching charitable gift program; life insurance benefits; physicals; and financial planning assistance. In addition, we pay for club memberships for certain Named Executive Officers. These are used for business purposes, and if used from time to time for personal reasons, the Named Executive Officer must reimburse us for any expense.

Company Contributions to the Humana Retirement Equalization Plan (this amount is also listed in the Nonqualified Deferred Compensation table):

 

Bruce D. Broussard

   $ 162,966   

James H. Bloem

   $ 75,526   

James E. Murray

   $ 94,457   

Timothy S. Huval

   $ 18,736   

Jody L. Bilney

   $ 7,377   

Personal Use of Company Aircraft: The costs of personal use of Company aircraft was based on the aggregate incremental costs to the Company, including the lost tax deduction to the Company and personal deadhead hours.

 

Bruce D. Broussard

   $ 320,967

James H. Bloem

   $ 0   

James E. Murray

   $ 60,878   

Timothy S. Huval

   $ 0   

Jody L. Bilney

   $ 6,288   

 

  * Of this figure, approximately $209,215 represents the use of company aircraft by Mr. Broussard for commuting purposes in accordance with the previously-disclosed Broussard Employment Agreement prior to his relocation to the Louisville, Kentucky area.

Matching Charitable Contributions:

 

Bruce D. Broussard

   $   17,250   

James H. Bloem

   $ 20,000   

James E. Murray

   $ 10,000   

Timothy S. Huval

   $ 20,000   

Jody L. Bilney

   $ 20,000   

Financial Planning:

 

Bruce D. Broussard

   $   18,489   

James H. Bloem

   $ 0   

James E. Murray

   $ 0   

Timothy S. Huval

   $ 17,313   

Jody L. Bilney

   $ 9,259   

 

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Company Contributions to the Humana Retirement Savings Plan:

 

Bruce D. Broussard

   $   19,125   

James H. Bloem

   $ 19,125   

James E. Murray

   $ 19,125   

Timothy S. Huval

   $ 19,125   

Jody L. Bilney

   $ 19,125   

Other (Includes life insurance, reimbursement for relocation expenses, physicals, commuting and housing allowances, and guest expenses while on business travel):

 

Bruce D. Broussard

   $ 90,062   

James H. Bloem

   $ 13,377   

James E. Murray

   $ 19,065   

Timothy S. Huval

   $ 283,547   

Jody L. Bilney

   $ 316,617   

 

(5) On November 2, 2012, we entered into an amended and restated employment agreement with Mr. Broussard, which we refer to as the 2012 Broussard Employment Agreement, pursuant to which Mr. Broussard served as our President and Chief Executive Officer during 2013. Pursuant to the 2012 Broussard Employment Agreement, Mr. Broussard was paid an annual base salary of not less than $1,085,000 and was eligible to participate in all benefit plans and programs made available by us to our employees, including participation in bonus and incentive compensation plans and programs on terms determined by the Committee. In addition, Mr. Broussard was eligible to receive a target annual incentive equal to 150% of his base salary and a maximum annual incentive equal to 150% of his target incentive, payable pursuant to the Company’s Executive Management Incentive Compensation Plan. Mr. Broussard was also entitled to a long-term incentive award in 2013 with a value of $5,000,000 (such to be determined on the same basis as the Committee’s values such awards generally). In recognition of the fact that Mr. Broussard needed to temporarily commute to the Louisville area, the 2012 Broussard Employment Agreement also provided for: (i) standard relocation benefits under the company’s relocation policy; (ii) use of the Company aircraft for purposes of commuting from his former residence to the Company’s principal offices in Louisville, Kentucky; and (iii) a housing allowance in the amount of $10,000 per month. These commutation and housing allowances were to be provided until the earlier of (a) Mr. Broussard’s relocation to Louisville, Kentucky, and (b) August 31, 2013, with no gross-ups for any taxes Mr. Broussard may have incurred with respect to these payments or benefits. Mr. Broussard was also entitled to be reimbursed for legal fees incurred in connection with the negotiation of the Broussard Employment Agreement. Effective February 27, 2014, we replaced the 2012 Broussard Employment Agreement with the Current Broussard Agreement.

 

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Grants of Plan-Based Awards

 

 

The following table provides information about equity awards granted in 2013 under our Amended and Restated 2003 Stock Incentive Plan, which we refer to as the 2003 Stock Plan, or our 2011 Stock Incentive Plan, which we refer to as the 2011 Stock Plan, and the range of potential payments earned in 2013 under the Humana Inc. Executive Management Incentive Compensation Plan, which we refer to as the Management Incentive Plan. A discussion of the features of each type of award is included in the footnotes that follow the table.

 

Name   Grant
Date
    Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payouts
Under Equity Incentive
Plan
Awards(2)
   

All
Other

Stock

Awards:

Number

Of
Shares

Of
Stock

or Units

(#)(3)

   

All

Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)(4)

   

Exercise

or Base

Price

of

Option

Awards

($/Sh)(5)

    Closing
Market
Price
on
Grant
Date
($/Sh)
    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(6)
 
         Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
                                    
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k-1)     (k-2)     (l)  

Bruce D. Broussard

    01/01/2013        813,750        1,627,500        2,441,250                                                                   
    02/20/2013                                                        17,161                        72.60        1,250,007   
      02/20/2013                                                                52,003        72.84        72.60        1,235,534   
    02/20/2013                                21,966        34,322        53,542                                        2,500,014   

James H. Bloem

    01/01/2013        318,750        637,500        956,250                                                                   
      02/20/2013                                                        6,006                        72.60        437,477   
      02/20/2013                                                                18,201        72.84        72.60        432,436   
      02/20/2013                                7,688        12,013        18,740                                        875,027   

James E. Murray

    01/01/2013        382,500        765,000        1,147,500                                                                   
    02/20/2013                                                        6,864                        72.60        499,974   
    02/20/2013                                                                20,801        72.84        72.60        494,209   
      02/20/2013                                8,787        13,729        21,417                                        1,000,020   

Timothy S. Huval

    01/01/2013        262,500        525,000        787,500                                                                   
    02/20/2013                                                        4,633                        72.60        337,468   
    02/20/2013                                                                14,041        72.84        72.60        333,599   
      01/02/2013                                                        21,709                        68.44        1,500,092   
      02/20/2013                                5,931        9,267        14,457                                        675,008   

Jody L. Bilney

    01/01/2013        262,500        525,000        787,500                                                                   
      05/02/2013                                                        4,906                        75.30        374,966   
      05/02/2013                                                                14,868        76.43        75.30        364,813   
      05/02/2013                                6,280        9,813        15,308                                        750,008   

 

  (1) Amounts calculated based upon annualized base salary, rather than actual amounts paid, for 2013. The actual payment of incentive compensation is shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table under “Executive Compensation” in this proxy statement. For the EPS objective under our Management Incentive Plan, there are threshold, target and maximum achievement payout levels that impact the final value of the award. Performance below the threshold yields no award. See the Compensation Discussion and Analysis contained herein for a discussion of incentive compensation for our Named Executive Officers. The Committee has sole discretion to determine whether to actually pay the entire permissible award, to decrease an award, or to defer payment of any award. The Committee is also authorized to establish additional conditions and terms of payment for awards, including the achievement of other or additional financial, strategic or individual goals, which may be objective or subjective, as it deems appropriate. The Committee may not waive the basic performance targets as to the business criteria chosen for any performance period. As Ms. Bilney’s employment began on May 2, 2013, she will receive a pro-rated amount of the final payout.

 

  (2) In 2013, our Named Executive Officers were awarded 25% of their equity grants in the form of stock options, 25% in the form of restricted stock units with time-based vesting, and 50% in the form of performance-based restricted stock units with performance criteria for these latter awards based upon three-year cumulative goals for (a) strategic membership growth and (b) return on invested capital less weighted average cost of capital (ROIC-WACC). The performance-based units vest three years from the date of grant to the extent that the underlying performance targets have been met.

 

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  (3) Amounts in this column represent restricted stock units awarded to our Named Executive Officers that fully vest three years from the date of grant.

 

  (4) Stock options awarded to our Named Executive Officers are incentive stock options to the extent allowed by regulation and the balance are treated as nonqualified stock options. Stock options granted to our Named Executive Officers vest and become exercisable in equal annual one-third installments from the date of grant. The above options expire seven years from the date of grant. In the event of a Change in Control of the Company, as defined in the 2003 Stock Plan, all outstanding stock options become fully vested and immediately exercisable in their entirety. In addition, during the 60-day period following the Change in Control, any stock option (or portion thereof) granted under the 2003 Stock Plan may generally be surrendered for cancellation for a payment of the difference between the adjusted fair market value of the underlying common stock and option price as more fully described in the 2003 Stock Plan. (See the section entitled “Potential Payments Upon Termination or Change in Control of the Company” herein for further detail and for a quantification of the acceleration of stock options upon a Change in Control.) The exercise price may be paid in cash or, at the discretion of the Committee, in shares of our common stock valued at the fair market value on the date of exercise or any combination thereof. Under our incentive stock plans, the Board may not reduce the exercise price for options or stock appreciation rights by re-pricing or replacing any option award.

 

  (5) Options under our stock incentive plans cannot be granted at less than the Fair Market Value. The Fair Market Value, as defined in our stock incentive plans, is the average of the highest and lowest reported sales prices of our common stock in transactions reported on the composite tape by the NYSE on the grant date. Each of the 2003 Stock Plan and the 2011 Stock Plan was approved by our Board of Directors and by our stockholders.

 

  (6) Discloses the aggregate grant date fair value of restricted stock awards and stock option awards granted in the fiscal year, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation — Stock Compensation”. Performance-based restricted stock awards are disclosed at target value, based upon the probable outcome of the performance conditions.

 

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Outstanding Equity Awards at Fiscal Year-End

 

 

The following table provides information on the stock option, restricted stock, restricted stock units and performance-based restricted stock holdings of our Named Executive Officers as of December 31, 2013.

 

       Option Awards     Stock Awards

Name

(a)

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

(b)

   

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

(c)

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

(d)

 

Option

Exercise

Price

($/Sh)

(e)

   

Option

Expiration

Date

(f)

   

Number

of Shares

or Units

of Stock

That

Have
Not

Vested

(#)

(g)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested

($)

(h)(11)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights

That Have

Not Vested

(#)

N/A

(i)

 

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested

($)

N/A

(j)

Bruce D. Broussard

    107,534                    88.6836        12/01/18 (12)                         
              52,003            72.8400        02/20/20 (3)                         
                                          17,161 (4)      1,771,368           
                                          21,966 (5)      2,267,331           

James H. Bloem

            7,589            61.1800        02/17/18 (1)                         
      9,478        18,958            88.6475        02/23/19 (2)                         
              18,201            72.8400        02/20/20 (3)                         
                                          16,683 (6)      1,722,019           
                                          7,688 (5)      793,555           

James E. Murray

            13,070            61.1800        02/17/18 (1)                         
      16,249        32,498            88.6475        02/23/19 (2)                         
              20,801            72.8400        02/20/20 (3)                         
                                          25,207 (7)      2,601,867           
                                          8,787 (5)      906,994           

Timothy S. Huval

            14,041            72.8400        02/20/20 (3)                         
                                          21,709 (8)      2,240,803           
                                          4,633 (8)      478,218           
                                          5,931 (5)      612,198           

Jody L. Bilney

            14,868            76.4300        05/02/20 (13)                         
                                          4,906 (9)      506,397           
                                          6,280 (10)      648,222           

 

  (1) Options granted on February 17, 2011, pursuant to the Company’s 2003 Stock Incentive Plan, vesting ratably over three years, with full vesting on February 17, 2014.

 

  (2) Options granted on February 23, 2012, pursuant to the Company’s 2003 Stock Incentive Plan, vesting ratably over three years, with full vesting on February 23, 2015.

 

  (3) Options granted on February 20, 2013, pursuant to the Company’s 2003 Stock Incentive Plan, vesting ratably over three years, with full vesting on February 20, 2016.

 

  (4) Restricted stock units awarded to Mr. Broussard on February 20, 2013, fully vest three years from the date of grant.

 

  (5) Performance-based restricted stock units awarded to Messrs. Broussard, Bloem, Murray and Huval on February 20, 2013, fully vest three years from the date of grant. The number of shares reported is based upon achievement of threshold performance goals.

 

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  (6) Restricted stock units awarded to Mr. Bloem on each of February 17, 2011 (5,149 remain unvested), February 23, 2012 (5,528 remain unvested) and February 20, 2013 (6,006 remain unvested), fully vest three years from the date of grant.

 

  (7) Restricted stock units awarded to Mr. Murray on each of February 17, 2011 (8,867 remain unvested), February 23, 2012 (9,476 remain unvested) and February 20, 2013 (6,864 remain unvested), fully vest three years from the date of grant.

 

  (8) Restricted stock units awarded to Mr. Huval on each of January 2, 2013 (21,709 remain unvested) and February 20, 2013 (4,633 remain unvested), fully vest three years from the date of grant.

 

  (9) Restricted stock units awarded to Ms. Bilney on May 2, 2013, fully vest three years from the date of grant.

 

  (10) Performance-based restricted stock units awarded to Ms. Bilney on May 2, 2013, fully vest three years from the date of grant. The number of shares reported is based upon achievement of threshold performance goals.

 

  (11) Based on the closing stock price on December 31, 2013 of $103.22.

 

  (12) Options granted on December 1, 2011, pursuant to the Company’s 2003 Stock Incentive Plan, fully vested.

 

  (13) Options granted on May 2, 2013, pursuant to the Company’s 2011 Stock Incentive Plan, vesting ratably over three years, with full vesting on May 2, 2016.

 

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Option Exercises and Stock Vested

 

 

The following table provides information on the stock options exercised by, and shares acquired upon the vesting of restricted stock units and restricted stock held by, our Named Executive Officers in 2013. Options exercised or vested restricted stock may or may not have been sold by a particular Named Executive Officer, and the inclusion in this table of such information should not be understood to imply the actual receipt of monies.

 

      Option Awards      Stock Awards  

Name

(a)

  

Number of

Shares

Acquired on
Exercise (#)

(b)

    

Value Realized

on Exercise

($)(1)

(c)

    

Number of

Shares Acquired

on Vesting

(#)

(d)

    

Value Realized

on Vesting

($)(2)

(e)

 

Bruce D. Broussard

     0         0         39,465         4,114,226   

James H. Bloem

     66,143         1,507,136         17,201         1,648,515   

James E. Murray

     70,346         1,433,114         28,668         2,747,492   

Timothy S. Huval

     0         0         0         0   

Jody L. Bilney

     0         0         0         0   

 

  (1) The Value Realized on Exercise is based on the difference between the Fair Market Value of our common stock as reported by the New York Stock Exchange composite tape and the exercise price of the options on the date of exercise.

 

  (2) The Value Realized on Vesting is based on the Fair Market Value of our common stock as reported on the composite tape by the NYSE on the date of vesting, less the par value for each share vesting.

Nonqualified Deferred Compensation

 

 

The following table and narrative that follows provides information on the Humana Retirement Equalization Plan contributions and earnings for the Named Executive Officers in 2013.

 

Name

(a)

 

Executive
Contributions in
Last FY

($)

(b)

   

Registrant
Contributions in
Last FY

($)

(c)(1)

   

Aggregate
Earnings in

Last FY

($)

(d)

   

Aggregate
Withdrawals/

Distributions

($)

(e)

   

Aggregate
Balance at
Last FYE

($)

(f)

 

Bruce D. Broussard

    —         162,966       1,329       —         213,045  

James H. Bloem

    —         75,526       340,717       —         2,093,773  

James E. Murray

    —         94,457       1,081,886       —         5,218,934  

Timothy S. Huval

    —         18,736       0       —         18,736  

Jody L. Bilney

    —         7,377       0       —         7,377  

 

  (1) The amounts listed above under Registrant Contributions in Last Fiscal Year (column c) are also included under the All Other Compensation column of the Summary Compensation Table in this proxy statement.

We have a 401(k) plan, the Humana Retirement Savings Plan, and a nonqualified, unfunded, defined contribution plan, the Humana Retirement Equalization Plan. The Internal Revenue Code imposes limitations on the contributions that may be made to a qualified plan, like our Humana Retirement Savings Plan. In 2013, once an individual is paid $255,000 in compensation, both individual and Company contributions to the Pretax

 

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Savings Account of the Humana Retirement Savings Plan must cease. Any Company matching contributions that would have been made to the Pretax Savings Account of the Humana Retirement Savings Plan are credited to the Pretax Savings Account of the Humana Retirement Equalization Plan.

The benefits accrued under the Humana Retirement Equalization Plan are those Company contributions that cannot be made to the qualified Humana Retirement Savings Plan because of the IRS limitations. The maximum percentage of compensation (base salary and incentive compensation) that can be contributed by a highly compensated employee to the Humana Retirement Savings Plan is 35% for 2013. The Company matches 125% of the first 6% of employee salary deferrals. Accruals under the Humana Retirement Equalization Plan, which is unfunded, are deemed to be invested in the accounts selected by the participants. The Humana Retirement Equalization Plan allows daily rebalancing of funds and allows direction of investment elections. Benefits in the Humana Retirement Equalization Plan, as directed by the participants, are distributable upon termination of employment, death, total disability, retirement or a Change in Control of the Company. Distribution of benefits may take the form of a lump sum, periodic installments not to exceed twenty (20) years, or an annuity — if the Humana Retirement Equalization Plan balance exceeds $100,000. All of the Named Executive Officers, except Mr. Broussard, eligible for a contribution under the Humana Retirement Equalization Plan in 2013 will receive a lump sum payment upon termination. Mr. Broussard has elected installments for 10 years following termination.

 

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Potential Payments Upon Termination or Change in Control of the Company

 

 

The Named Executive Officers would each receive certain payments upon termination from the Company which vary in amount depending on the reason for termination. Each Named Executive Officer would also receive a specified payment in connection with a Change in Control of the Company. The table below provides dollar amounts for all potential payments that would be paid by us to each Named Executive Officer under various scenarios involving either a termination or a Change in Control. The amounts disclosed assume the Named Executive Officer’s termination under the various scenarios occurred on December 31, 2013. The payments to our Named Executive Officers are governed by the various agreements or arrangements described in the footnotes to the table (with the exception of Mr. Broussard, whose payments as of December 31, 2013 would have been governed by the 2012 Broussard Employment Agreement as described in footnote (2) below). The timing of the payments described below to the Named Executive Officers may also be subject to the provisions of Section 409A which may delay payment.

 

Name and Form

of Payment

  Voluntary
Termination
(a)
     Involuntary
Termination
without
Cause
(b)
     Involuntary
Termination
for Cause
(c)
     Retirement(6)
(d)
     Death or
Disability(7)
(e)
     Change in
Control(4)
(f)
 

Bruce D. Broussard (1)

                

• Severance

  $ 2,170,000       $ 2,170,000       $ 0       $ 0       $ 0       $ 7,052,500   

• Life, Health & Other Benefits (8)

    0         0         0         0         0         47,205   

• Stock Options (accelerated) (3)

    0         1,557,490         0         0         1,557,490         1,557,490   

• Restricted Stock Units (accelerated) (3)

    0         1,771,359         0         0         7,297,964         1,771,359   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

• Subtotal: Termination Related Payments

  $ 2,170,000       $ 5,498,849       $ 0       $ 0       $ 8,855,454       $ 10,428,554